How to compare mortgage Loan Estimates

Why the lowest rate is often the more expensive loan

Every mortgage offer is two numbers pretending to be one. There is the rate, which sets your monthly payment, and there is the cash the lender charges you up front to give you that rate. Lenders can move freely between them, and they know which number you will quote to your spouse.

So a lender who wants to look cheap lowers the rate and raises the origination charge. You pay the difference on day one and get it back at a few dozen dollars a month. Whether that is a good trade depends on one thing nobody asks you at the time: how long you will actually keep this loan.

Here is a real pair of offers on a $320,000 loan:

• Lender A — 6.125%, $2,400 in lender charges. Payment $1,944.
• Lender B — 5.99%, $7,900 in lender charges. Payment $1,917.

Lender B has the better rate and the smaller payment. Lender B is also $3,336 more expensive over five years, and its extra $5,500 up front does not pay for itself until year 12.9. Since the typical mortgage is refinanced or paid off long before that, Lender B is the wrong answer for most buyers — and nothing printed on either Loan Estimate says so.

You cannot do this comparison in your head, because it requires amortizing both loans month by month to find the crossover. That is exactly what our Loan Estimate comparison tool does with your own numbers.

What a Loan Estimate is (and why it is the only thing worth comparing)

A Loan Estimate is a standardized three-page form that federal rules require a lender to give you within three business days of a complete application. Standardized is the important word: every lender uses the same layout with the same lines in the same order, specifically so that offers can be laid side by side.

This is why a verbal quote is worth nothing. "I can probably get you around six and an eighth" is not an offer, is not comparable, and is not binding on anybody. When a lender tells you a rate on the phone, your reply is: please send me a Loan Estimate.

Note also that a Loan Estimate is not a pre-approval and does not commit you to that lender. Requesting one from four lenders is normal, expected behaviour, and it is what the form exists for.

The only three lines that differ between lenders

Page 2 is where the money is. Under Loan Costs:

• A. Origination Charges — the lender's own fee for making the loan, plus any discount points you are buying. This is the line lenders compete on and the line they bury.
• Lender Credits (bottom of page 2) — money the lender gives you toward closing, usually in exchange for a higher rate. A negative charge, and it counts.
• The interest rate on page 1, which has to be read together with the two above or it means nothing.

Now the part that saves you hours: most of the rest of the form is noise for shopping purposes. Sections B and C (appraisal, credit report, title, pest inspection), section E (recording fees and transfer taxes) and section F (prepaid taxes and insurance) are set by your property, your county and the calendar. They are close to identical whichever lender you pick. Including them in your comparison does not make it more thorough; it dilutes the one signal you are looking for.

One caveat: section C items are ones you are allowed to shop for separately — title and escrow especially. That is a real saving, but it is a different negotiation from choosing your lender, and mixing the two is how people end up comparing nothing at all.

The number to rank by: total cost of borrowing

Three candidate metrics, two of which are traps:

• Monthly payment — rewards whoever charged you the most up front. A trap.
• Interest rate — rewards whoever hid the most in points. A trap.
• APR — better, because it folds the lender's charges into the rate. But APR assumes you keep the loan for the entire 30 years, which almost nobody does, so it systematically flatters offers with big upfront costs.

The honest metric is total cost of borrowing over your realistic hold: the interest you will pay in that window, plus net lender charges. It prices the rate and the fees against each other correctly, and it is sensitive to the one variable that actually decides the answer — how long you keep the loan.

Pick your hold period honestly. Five to seven years is the usual planning assumption for a first condo. If there is a real chance you move or refinance sooner, use the shorter number: a loan optimized for year 13 that you exit in year 4 is a loan you overpaid for.

Should you pay points?

A discount point costs 1% of the loan and buys the rate down, typically by about an eighth to a quarter of a percent. It is a prepayment of interest — you are handing over cash now for a smaller payment later.

The test is the break-even: divide what the points cost by the monthly saving, and that is how many months until you are ahead. Past that month, points were a good trade. Before it, they were a loss.

Three things push the answer toward no:

• Any real chance you sell or refinance within the break-even window.
• Being short on cash for the down payment — points compete directly with your equity, and a bigger down payment may cut PMI, which is often the better return.
• An expectation that rates fall, since refinancing throws away whatever you prepaid.

And one that pushes toward yes: you are certain this is a long hold, and the money has no better use.

How to make lenders compete

A Loan Estimate is a written offer, and lenders routinely improve one when shown a better competing offer. This is ordinary practice, not a stunt — mortgage pricing has room in it, and a loan officer would rather cut their margin than lose the file.

What works:

• Gather your quotes inside a short window. Multiple mortgage credit pulls within a 45-day period count as a single inquiry for scoring purposes, so shopping does not damage your credit the way people assume.
• Send your best written offer to the others and ask them to beat it on both APR and total lender charges. Naming both prevents the reply that shaves the rate and adds it back in fees.
• Ask for a revised Loan Estimate, not a verbal promise. Only the document is comparable, and only the document survives a change of loan officer.
• Send it to the current leader too. That is how you learn whether their best offer was actually their best offer.

Our comparison tool writes this message for you, filled in with your own best terms.

The condo-specific traps

Condos carry financing risks that never appear on a Loan Estimate, and in the Bay Area they are the ones that actually kill deals:

• The project may not be FHA-approved. FHA will not insure a loan in a project that is not on HUD's list, which removes the 3.5%-down option entirely. Most small associations never apply, so this is common rather than damning — but you need to know before you plan a low-down-payment purchase. Every Stealpad listing page shows this for the specific building.
• Conventional warrantability. Fannie and Freddie impose their own project rules — owner-occupancy ratios, one owner holding too many units, commercial space share, litigation, and since 2022 much stricter scrutiny of deferred maintenance and special assessments. A non-warrantable project means a portfolio loan at a worse rate.
• The HOA fee changes what you can borrow. Underwriters add dues to your housing expense ratio, so roughly every $100 of monthly dues removes $15,000–$17,000 of purchase price at current rates. Two condos at the same price are not the same loan. Our mortgage calculator starts from the dues actually recorded for each city rather than defaulting them to zero.
• A pending special assessment can block the loan outright, not merely cost you money. Ask before you are emotionally committed — see special assessments.