Mortgage Loans Explained: How to Find the Cheapest Option

Mortgage Loans Explained: How to Find the Cheapest Option

When searching for a mortgage loan, many borrowers focus on getting the
cheapest option. However, “cheap” can mean different things to different
people—whether it’s the lowest interest rate, lowest closing costs, best
service, or the latest technology. Most often, borrowers focus on interest
rates without fully understanding how costs impact their mortgage. In this
article, we’ll break down how to accurately compare mortgage loans and find
the most cost-effective option for your needs.

Understanding Mortgage Loan Estimates

Federal law requires lenders to provide borrowers with a
Loan Estimate (LE) within three business days of submitting a
mortgage application. This document details essential information, including:

• Loan amount
• Interest rate
• Monthly payment (including taxes and insurance)
• Closing costs
• Cash required at closing

The Loan Estimate helps borrowers compare loan offers from
different lenders. However, many people overlook the most critical sections
that impact overall costs. Individuals may contact multiple lenders, but they
don’t always understand the forms they receive and what details matter most.
That’s why knowing what can change and what cannot is crucial when shopping
for the best mortgage loan.

Key Sections of the Loan Estimate

Page 1: The Overview

The first page of the Loan Estimate provides a summary of
your mortgage, including:

• Loan amount
• Interest rate
• Projected monthly payment (including property taxes and homeowners
  insurance)
• Estimated closing costs
• Total cash needed at closing

While this page gives a high-level overview, the most crucial information for
comparing lenders is found on Page 2.

Page 2: Analyzing the Closing Costs

Page 2 provides a detailed breakdown of closing costs. The
most important sections are:

Box A: Origination Charges

• Underwriting fees
• Processing fees
• Discount points (if applicable)
• Other lender fees

Box B: Services You Cannot Shop For

• Appraisal fees
• Credit report fees
• Any fees from lender-affiliated service providers

Why These Matter: The fees in
Box A and Box B are
directly controlled by the lender. When comparing lenders,
focus on these sections to understand which lender is truly offering the best
deal. Other sections of the Loan Estimate include fees that
vary based on third-party providers, such as title companies or insurance
agents, and should not be used to compare lenders.

Many borrowers fail to review Page 2 of the Loan Estimate
carefully, but it’s where you’ll find the actual lender-controlled costs that
determine the total expense of the loan. The government designed this document
to help consumers shop effectively, yet most people don’t fully utilize it.

How to Compare Mortgage Loans Accurately

Many borrowers make the mistake of focusing solely on the
interest rate, without considering closing costs. Here’s the
key relationship to understand:

• Lower interest rates often come with higher closing costs.
• Higher interest rates may come with lower upfront costs.

To find the best deal, compare both the interest rate and the
fees in Box A and Box B. If one lender offers a lower rate
but significantly higher fees, you may not actually be saving money.

Additionally, understanding what fees can and cannot change is essential.
Certain costs remain fixed, while others fluctuate based on the lender or
services you choose. Federal compliance laws dictate that once you receive a
Loan Estimate, the lender cannot arbitrarily change the fees listed under Box
A and Box B, making them a reliable comparison tool.

Beware of Underestimated Fees

Some lenders lowball certain fees to make their loan appear
cheaper. For example:

• Underestimating property taxes or homeowners insurance
• Not including certain closing costs upfront

Make sure you’re comparing apples to apples by reviewing the
total lender-controlled costs and ensuring other variables (like taxes and
insurance) are estimated correctly.

This is a common issue with mortgage loans. Some lenders will intentionally
disclose lower costs in estimates to attract borrowers, only to adjust the
numbers later when the final loan disclosure is provided. This tactic misleads
borrowers into believing they are getting a better deal than they actually
are.

Choosing Your Service Providers

Another often-overlooked aspect of mortgage costs is that
borrowers can choose certain service providers.

For example, you have control over:

• Homeowners insurance provider
• Title company
• Home warranty provider

These choices impact your final costs. Some lenders may try to direct you to
their preferred providers, which may not always be the most affordable
options. Taking the time to shop for services such as
home insurance and title services can help
you save additional money.

Loan Estimate Breakdown: What You Need to Know

If we go back to the Loan Estimate, let’s break it down
further. Apart from Box A and Box B, there are other sections
you should be aware of:

Section C: Services you can shop for (like home inspections,
surveys, and title services).

Sections D-H: Costs for property taxes, homeowners insurance,
and prepaid expenses. These numbers will vary based on the property and its
location.

While many of these costs are out of the lender’s control, you should still
review them carefully to avoid overpaying.

How to Identify the Best Mortgage Loan for You

To ensure you’re getting the best deal, follow these steps:

1. Compare Loan Estimates from Multiple Lenders
   • Focus on Box A and Box B for lender-controlled fees.
   • Compare interest rates in relation to closing costs.
2. Watch for Hidden Costs
   • Ensure estimated property taxes and insurance are realistic.
   • Ask about potential fee increases at closing.
3. Understand Your Priorities
   • Do you prefer lower closing costs or a
     lower interest rate?
   • Decide what works best for your budget and long-term goals.
4. Avoid Manipulative Tactics
   • Some lenders intentionally disclose low fees upfront to appear cheaper.
   • Make sure you check all pages of the Loan Estimate to identify real
     costs.

Final Thoughts: Finding the Cheapest Mortgage Loan

Finding the best mortgage loan doesn’t have to be overwhelming. By
understanding how Loan Estimates work and knowing which sections to review,
you can confidently shop for the best deal.

Need Help Choosing the Right Mortgage?

If you’re still unsure how to compare loan offers, we’re here to help! At
Mortgage Specialists, we provide expert guidance to ensure
you understand all your options. Give us a call at
402-991-5153 or visit our website at
mtg-specialists.com
to learn more.

By taking the time to analyze your Loan Estimate correctly,
you can make an informed decision and secure the best mortgage deal for your
needs!