It feels like going to a mechanic, doesn't it?

You give your pay stubs, they give you a pre-approval.

You shop. You find the house you love, you get under contract and....

In comes the lender's loan estimate.

You look it over, the costs seem high, but you don't know which costs are normal, and which costs are abnormal.

You see rates online are much lower than what the loan estimate shows, and there's that feeling in the back of your mind that you're getting screwed over.

But what can you do about it?

You're under contract, you have to close.

Do you back out?

What are your options?

Here's what I think your options are:

• You shop lenders
• You get a second opinion
• Or... you stay the course or just back out altogether. You should at least try the first two options before backing out though.

How to shop lenders

There are 3 types of lenders:

• local bank/credit union
• mortgage broker (could be local, could be remote)
• online lender (normally not local)

Here are the pros and cons for each one (from my view, you might have had a different experience if you've already purchased before)

• Local banks and credit unions have low rates. But they're slow, tedious, and less responsive
• Mortgage brokers have flexibility, can shop rates and scenarios on your behalf, but can be pushy/salesy and may have higher rates if they are asking the lender to pay them a high origination fee
• Online lenders might have ease of use with technology, but they're essentially a call center and usually a large company with a lot of management/shareholder overhead

If you're going to shop, try to include at least 2 out of the 3 options above.

Have them play on the same field

If you're going to shop lenders, get them all on the same field, playing by the same rules.

The rules they all need to play by are:

1. Quote in the same format
2. Quote the same product
3. Quote the same interest rate

The Format

You need an official Loan Estimate.

But to get an official Loan Estimate, you're going to need to give the lender a bit of info (okay, a lot of info, by doing a full application and credit pull)

*side note, credit bureaus make money when you get your credit pulled. They want you to pull your credit a lot. So they allow you to shop around for a mortgage and have all of the credit pulls done within 45 days to be counted as if it were 1 pull. (I'm quoting the CFPB here on the 45 days)

The reason you want a Loan Estimate is because each lender uses it. It's a standardized form and makes it extremely easy to compare loan offers side by side.

The Product

It's impossible to compare quotes if one lender is quoting an FHA loan, and the other is quoting a Conventional loan.

Set the terms.

If you received your first Loan Estimate for a conventional loan, then ask the next lender to also quote a conventional loan.

If the first lender quoted an ARM, then ask the second lender quote an ARM too.

The Interest Rate

You might not have known this, but one lender can offer the same interest rate as the other lender. (there are exceptions, but in general this is true)

If they can all offer the same rate, then why don't they?

Because they all have different costs associated with that rate.

Why?

It usually comes down to how much money they want to make.

Lenders can build their costs into the rate.

Rather than show you a low rate with high costs, they can show you a higher rate with lower costs.

In the end, the best lender is going to have the lowest cost for the same rate.

So force their hand. Make them quote you on the same rate across the board, and that will reveal who has the best terms.

How to compare Loan Estimates

This one is simple.

On page one, make sure these things are the same, remember, same rules, same playing field:

• Loan product (conventional, FHA, VA, USDA)
• Fixed rate, or adjustable
• Term (30 year, 15 year, 10 year)
• Loan amount
• Purchase price
• The interest rate

One other thing can vary on page one, if you're paying less than 20% down payment, you'll likely end up with mortgage insurance. That mortgage insurance payment can vary from lender to lender.

Here are the sections on page 2 that you'll want to compare:

• Section A
• Section B
• Section J

Sections A and B are lender fees. This could be underwriting, points, origination, appraisal, processing, credit reports, etc.

Any other section isn't usually in lender's control.

Section C is title insurance. Most title companies are selected by you and your real estate agent. So don't read into those Section C fees too much if they vary from lender to lender.

Sections E,F,G have to do with your property taxes and homeowners insurance. The lender won't dictate who you use for that homeowners insurance, and they certainly can't dictate how much your property taxes are.

Section J may include a lender credit to help you offset some of the closing costs.

Here's the formula:

Section A + Section B - Section J's lender credits (if any)

If you find out your lender is screwing you over

Say you've reviewed a couple of loan estimates and find out that the lender your realtor recommended has extremely high fees. What do you do?

Here's what I'd suggest you do:

Send an email with the other Loan Estimate, asking "Can you match?"

If the loan officer responds "Yes" then I'd ask "can I review a new loan estimate before making any decisions?"

Okay, onto the second option, which is my favorite low-pressure way to go about this.

Get a second opinion

I see a lot of loan estimates get thrown onto the first time homebuyer subreddit, but there is a lot of context missing and it makes it really hard for strangers to give feedback.

Have a professional review your loan estimate without committing to a full application.

Most officers won't budge without taking a full application.

Some might be open to it though

Here's a checklist of the minimum amount of info you'd want to give that lender

Summary

Just like going to the mechanic, the only way to know if the mechanic isn't twisting your arm into a repair you don't need, is by going to two mechanics.

Mortgages are easier than cars, you just need to set the same terms for everyone involved, and compare the paperwork.

This simple review could be your ticket to thousands of dollars in savings.