Loan Shopping: The LE Comparison

Lenders must provide a Loan Estimate (LE) within 3 days of application. The LE is a standardized TRID form that shows rate, points, fees, and APR. Comparing LEs side-by-side is the only way to find the cheapest loan.

Key takeaways

• A Loan Estimate (LE) is a standardized disclosure required by federal law; all lenders must provide one in the same format within 3 business days of application
• The LE shows the interest rate, origination/points, and all other fees (appraisal, title, credit, attorney, insurance) on one page
• Comparing three LEs side-by-side (lender A, B, C) reveals which lender is charging hidden fees and which is the cheapest all-in
• APR (annual percentage rate) factors in rate, points, and some fees over the life of the loan, but it's not a reliable comparison tool for short holds
• Shopping multiple lenders for the same property typically saves 25–75 basis points (0.25–0.75%) in rate and 1–3% in total fees

What the Loan Estimate Contains

The Loan Estimate is broken into three sections:

Section 1: Loan Terms

• Loan amount: $750,000
• Interest rate: 6.75%
• Loan program: 30-year fixed / 7/1 ARM / 5/1 balloon
• APR: 6.95%
• Loan purpose: Purchase or Refinance
• Product type: Conventional, FHA, Portfolio, etc.

Section 2: Projected Payments

• Principal & Interest: $4,884/month
• Mortgage Insurance: $0 (investment property typically has no PMI)
• Estimate Taxes & Insurance: $600/month (lender's estimate; actual varies)
• Estimated Total Monthly Payment: $5,484

Section 3: Closing Costs

• Origination fee (lender cost): $7,500 (1%)
• Discount points (to buy down rate): $5,250 (0.7 points) [optional, shown if borrower requests]
• Appraisal: $500
• Credit report: $30
• Title/escrow: $1,200
• Attorney fees: $700
• Survey: $400
• HOA search: $50
• Recording fees: $150
• Homeowners/flood insurance (first year, prorated): $1,200
• Property taxes (prorated): $300
• Hazard insurance (advance premium): $1,200
• Total Estimated Closing Costs: $18,530

Comparing Loan Estimates: The Apples-to-Apples Method

Lenders quote differently. One might advertise "6.75% with 1 point," another "6.5% with 1.5 points," another "7.0% with 0 points." To compare:

1. Request the same loan structure from all lenders: "I want a $750k loan, 6.75% rate, 30-year fixed, no points, no prepayment penalty."
2. All lenders provide LEs with identical rate and term.
3. Compare only closing costs and origination fees.

Example: Three LEs for a $750k investment property loan, 30-year fixed, no discount points:

	Lender A	Lender B	Lender C
Interest rate	6.75%	6.75%	6.75%
APR	6.95%	7.05%	7.10%
Origination fee	$7,500 (1%)	$6,000 (0.8%)	$8,250 (1.1%)
Appraisal	$500	$600	$500
Credit report	$30	$50	$30
Title/escrow	$1,200	$1,500	$1,200
Attorney	$700	$0	$900
Recording/misc	$400	$400	$400
Total closing costs	$10,330	$9,050	$11,280
All-in cost (LE total + points)	$10,330	$9,050	$11,280

Winner: Lender B saves $1,280 (12% lower costs).

On a $750k loan over 30 years, $1,280 in upfront savings is modest but real. Lender B also has the lowest APR (7.05% vs. 6.95% and 7.10%), which factors in their lower fees.

Reading the APR: Why It's Misleading for Investors

APR (annual percentage rate) is supposed to include rate, points, and certain fees spread across the loan's life. Regulators intended APR to be a comparison tool. But it's misleading for investors because:

1. It assumes a 30-year hold: APR spreads the lender's one-time fees across 30 years. If you're holding 5 years and selling, the amortized fee cost is wrong (fees are front-loaded, amortized over 30 years but paid upfront).

2. It doesn't include all fees: APR excludes title, appraisal, HOA search, attorney, and some prepaid costs. These are real costs that affect total cost, but they're not in the APR calculation.

3. It's rate-dependent: A lender with 7.0% rate + 2 points has a much higher APR than a lender with 6.75% rate + 0 points, even if the true 5-year cost is similar.

For a 5-year hold (common for investors):

	Lender A	Lender B
Rate	6.75%	7.0%
Points	0	2 (cost: $15,000)
APR	6.95%	7.60%
5-year cost (interest + points)	$253,500 (interest only)	$253,500 (interest) + $15,000 (points) = $268,500
APR advantage (A over B)	0.65%	—
True 5-year advantage (A over B)	$15,000 (lower total cost)	—

Lender A's 0.65% APR advantage correctly translates to $15k 5-year cost advantage. But only because the point-buy happens to pencil out the same. In a different scenario, the APR might show one lender as cheaper while the true 5-year cost favors another.

For investors, calculate true cost over your actual hold period, not APR.

Shopping Multiple Lenders

Standard advice: "Shop at least 3 lenders." Why?

• Lender A might excel in conventional jumbo (loans $1M+) but add fees on smaller loans.
• Lender B might specialize in investment property and price it aggressively.
• Lender C might have slow underwriting but offer the best rate locks.

Variation in quotes is substantial. On a $750k investment property loan, the spread between cheapest and most expensive lender is often 75–150 bps in rate and 2–5% in total fees.

Spread = (7.0% from Lender C) - (6.75% from Lender A) = 0.25% = 25 bps difference in rate = ($18,750 more in interest over 30 years on a $750k loan)

Plus 1.25% more in closing costs (Lender C at $11,280 vs. Lender B at $9,050) = $1,680 extra upfront.

Total cost difference for A vs. C: $20,430 over 30 years, or $2,738/year. For a 5-year hold, it's $13,690 + $1,680 = $15,370 difference.

Shopping 3 lenders typically saves $10–20k in upfront and interest costs combined.

Rate Locks and Lock Periods

When you apply for a loan, the lender offers a rate lock—a guarantee that the rate won't change for a set period (typically 30–60 days). After the lock expires, the lender can adjust the rate to market.

Lock terms:

• 30-day lock: Standard; good for quick closings (purchase or rate-and-term refi)
• 45-day lock: Accommodates underwriting delays; costs 0.125% extra (6.75% becomes 6.875%)
• 60-day lock: Protects you through closing on a slower deal; costs 0.25% extra
• Floating rate: No lock; the rate adjusts daily until you lock it in. Used if you expect rates to fall.

For purchase loans, the lock should extend beyond your expected closing by 1–2 weeks (buffer for delays). For refinances, 45 days is typical.

Rate locks are negotiable. Some lenders include a free 30-day lock; others charge for locks over 30 days. Some offer free "rate improvement" (if rates fall during the lock, they ratchet down). Others don't.

Ask explicitly: "What's your lock policy? Any cost for locks over 30 days?"

The "LE Shopping" Process

Here's the step-by-step process to shop lenders correctly:

1. Prepare your numbers:

   • Property price: $1,000,000
   • Down payment: $250,000 (25%)
   • Loan amount: $750,000
   • Desired terms: 30-year fixed or 7/1 balloon, no points, no prepayment penalty

2. Request LEs from 3+ lenders:

   • Contact lender. Provide property address, purchase price, down payment, desired terms.
   • Ask explicitly: "Please provide a no-points LE for a $750k loan, 30-year fixed, at your current market rate."
   • Request by a deadline (e.g., "by Friday at 5pm").

3. Compare the LEs side-by-side:

   • Interest rate (should be identical if you specified same terms)
   • Origination fee and points
   • All individual fees (appraisal, title, credit, attorney, recording, etc.)
   • Total closing costs
   • APR (lowest APR is not always cheapest if your hold period is short)

4. Eliminate outliers:

   • One lender charging $2,000 for appraisal (others $500)? Ask why. It might be market-dependent or a mistake.
   • One lender charging $900 in attorney fees (others $0)? Check if it's optional or state-required.

5. Negotiate with the cheapest lender:

   • "Lender B quoted $1,200 for title; you quoted $1,500. Can you match?"
   • "Lender A offers 0.5 points lower origination. Will you match?"
   • Lenders have negotiating room, especially on closing costs.

6. Lock in the best rate and close:

   • Confirm the rate lock and lock period in writing.
   • Confirm all closing costs are as-quoted.
   • Monitor for "LE changes" (lenders sometimes re-issue LEs if rates move or new costs appear).

Beware of LE Bait-and-Switch

Lenders sometimes advertise a low rate on LEs but increase it later during underwriting. This is called "LE bait-and-switch" or "pipeline risk." Protections:

• Lock it in writing: Insist on a written rate lock agreement.
• Monitor the daily rate environment: If rates fall 50 bps after your lock, you're protected. If rates rise 50 bps, the lender can't increase your rate (you're locked).
• Read the LE fine print: Some LEs say "rate subject to final approval" or "rate valid for X days only." Avoid vague language; insist on a specific lock end date.

Closing Cost Breakdown: Where Lender Profit Hides

On a $750k loan, here's where lender profit and costs hide:

Item	Lender Cost	Lender Charge	Lender Profit
Origination	$1,000–2,000	$7,500 (1%)	$5,500–6,500
Appraisal	$350 (they order it)	$500	$150 profit or $150 markup
Title	$600 (title company charges)	$1,200	Markup/intermediary fee
Credit	$10–20	$30	$10–20 profit
Processing	Internal labor	Often free or bundled	Absorbed

Lender A's "$7,500 origination" on a $750k loan (1%) is standard. Lender B's "$6,000 origination" (0.8%) is competitive. Lender C's "$8,250" (1.1%) is high.

The difference between a 1% lender and a 0.8% lender is $1,500 on a $750k loan—not huge, but real. Multiplied across a portfolio of 5–10 loans, it's substantial.

Flowchart: Loan shopping decision process

Related concepts

• Fees, Rates, and the APR Trick

Next

Comparing Loan Estimates is the mechanics of shopping for capital. But understanding why lenders quote differently—why one charges 6.5% with 2 points and another charges 7.0% with 0 points—requires understanding how APR actually works and why mortgage lenders play games with rate-and-points bundles. The next article deconstructs the APR trick and shows how to calculate true cost over your actual hold period.