Run a side-by-side comparison with your actual loan offers: Mortgage Comparison Calculator →
Step 1: Request Loan Estimates from 3+ Lenders
The Loan Estimate (LE) is the standardized mortgage disclosure document that all lenders must provide within 3 business days of a complete application. It's three pages covering the loan terms, projected payments, and all closing costs broken down by category. Critically: lenders cannot increase Section A (Origination Charges) fees after issuing an LE without a valid change of circumstance.
Request Loan Estimates from at least 3 lenders — a bank, a credit union, and an online lender or mortgage broker. Federal Reserve research shows that getting one additional quote saves an average of $1,500 over the loan's life. Getting 5 quotes saves $3,000+. The rate differential that shopping reveals is usually 0.1%–0.5% — on a $320,000 loan at 0.25% lower rate, that's $18,000 in total interest over 30 years.
Multiple mortgage inquiries within a 45-day window count as a single inquiry for FICO scoring. There is no credit score penalty for shopping aggressively.
Step 2: Focus on Section A First
Section A on page 2 of the Loan Estimate is "Origination Charges" — the lender's direct fees. This is where lenders differ most and where all fees are negotiable. The main items:
- Origination fee: The lender's base fee. Compare this directly across LEs. A $4,000 origination fee vs. $1,500 is a $2,500 difference on the same loan.
- Discount points: Optional upfront payment to lower the rate. 1 point = 1% of loan = typically 0.25% rate reduction. Points are prepaid interest — only worth buying if you keep the loan 5–7+ years.
- Lender credits: The lender pays your closing costs in exchange for a higher rate. Shows as a negative number in Section A. Useful if you plan to refinance in 3–5 years.
Step 3: Understand Rate vs. APR
The interest rate is the cost to borrow principal. The APR includes the rate plus most fees (origination, points, mortgage insurance) expressed as an annual percentage. APR is always ≥ interest rate.
APR enables comparison across different fee structures: a 6.5% rate with $8,000 in origination fees has an APR of ~6.76% on a $320,000 loan. A 6.875% rate with no fees has an APR of 6.875%. On a 30-year hold, the lower APR loan (6.76%) wins. On a 5-year hold, the higher APR / lower fee loan may win because you don't keep the loan long enough to recoup the upfront fee savings.
| Loan | Rate | Fees | APR | Better if hold… |
|---|---|---|---|---|
| Low rate, high fees | 6.500% | $6,400 | 6.76% | 7+ years |
| High rate, no fees | 6.875% | $0 | 6.875% | Under 5 years |
Step 4: Calculate Total Cost at Your Holding Period
The definitive comparison is total cost — fees plus all interest paid — from closing to when you sell or refinance. APR assumes a 30-year hold, which most borrowers don't have. If you expect to move or refinance in 7 years, the relevant comparison is: (fees + 7 years of interest) for Loan A vs. (fees + 7 years of interest) for Loan B.
Negotiating with Loan Estimates in Hand
Once you have 3+ Loan Estimates, use them as leverage. Call your preferred lender and say: "I have a Loan Estimate from [Lender X] with $1,800 less in Section A. Can you match it?" Lenders know most buyers don't shop — they often can and will reduce fees when presented with a competing offer in writing. You cannot negotiate effectively from memory. The Loan Estimate is your document.
For the actual side-by-side comparison of any two loan offers at your planned holding period, the Mortgage Comparison Calculator shows total cost, monthly payment, APR, and which loan wins. For the full closing cost breakdown of each offer, use the Closing Costs Calculator.
Related Reading
Frequently Asked Questions
What is the difference between interest rate and APR?
Interest rate = cost to borrow principal. APR = rate plus most fees (origination, points, mortgage insurance) expressed annually. APR ≥ rate always. Use APR for apples-to-apples comparison across different fee structures — but remember APR assumes a 30-year hold. For your actual holding period, use total cost at that timeline instead.
Should I compare by rate or APR?
Neither alone. Use total cost (fees + interest) at your planned holding period. APR assumes a 30-year hold — most people don't keep a mortgage that long. If you'll sell or refinance in 7 years, the loan with a lower 7-year total cost wins, regardless of which has the lower rate or APR in isolation.
How many lenders should I get quotes from?
At least 3 — a bank, credit union, and online lender or broker. Fed research shows 5 quotes saves $3,000+ on average. Multiple mortgage inquiries within 45 days count as one credit inquiry — there's no credit score penalty for shopping aggressively.
Can mortgage shopping hurt my credit score?
No. All mortgage inquiries within a 45-day window are counted as a single inquiry under FICO scoring. Even one inquiry reduces your score by only 5–10 points temporarily. The savings from finding a better rate or lower fees far outweigh any impact.
What is a lender credit on a mortgage?
The lender covers your closing costs in exchange for a higher interest rate. It's the reverse of buying points. Useful if you'll sell or refinance within 3–5 years before the higher rate cost exceeds the closing cost credit. Shows as a negative number in Section A of the Loan Estimate.