Two lenders both tell you they have a "great rate." One quotes a lower interest rate. The other says its fees are lower. Which one is actually the better deal?

If you only compare the rate a loan officer quotes you on the phone, you can't really tell. The tool that lets you compare apples to apples is a three-page form called the Loan Estimate, and most buyers never learn how to read it. Let's fix that.

The Consumer Financial Protection Bureau (CFPB) describes the Loan Estimate as a three-page form you receive after you apply for a mortgage. The lender must provide it within three business days of receiving your application. It shows the loan terms, estimated payments and closing costs the lender expects to offer if you move forward.

Two things to know: getting a Loan Estimate doesn't mean you're approved or denied, and it doesn't commit you to that lender.

The CFPB recommends requesting Loan Estimates from several lenders so you can see who is offering the best deal. To get one, a lender needs six pieces of information: your name, your income, your Social Security number (for a credit check), the property address, an estimate of the home's value, and the loan amount you want.

Before you receive a Loan Estimate, a lender can only charge you a small fee for pulling your credit report. The CFPB says it's usually no more than $30. And if you're worried about your credit score: the CFPB says multiple Loan Estimates won't hurt your credit as long as you get them all within the same 45-day window.

Ask each lender for the same loan type, term, and down payment, ideally on the same day. Interest rates can change daily, so the CFPB notes that a rate difference between two lenders might just be because the estimates were issued on different days.

Not every number on the form is controlled by the lender. When you compare closing costs, the CFPB suggests focusing on the fees that vary by lender:

• Section A, Origination Charges: upfront fees your lender charges.
• Section B, Services You Cannot Shop For: services the lender requires and chooses the provider for.
• Section J, Lender Credits: rebates that offset your closing costs.

Taxes, government fees, prepaid items and escrow deposits are largely outside the lender's control. If those are wildly different between two estimates, ask why.

This is the number most buyers skip, and it's one of the most useful. The CFPB points out that, on average, borrowers keep a mortgage for about five years before moving or refinancing. On page 3 of the Loan Estimate, the "In 5 Years" section shows the total you'd pay over five years and how much principal you'd pay off. Subtract the principal from the total, and you have your five-year cost of borrowing. That makes it much easier to compare a lower rate with higher fees against a slightly higher rate with lower fees.

If you're looking at an adjustable-rate loan, remember that this five-year figure assumes rates stay the same, so look at the worst case too.

Page 2 shows your estimated cash to close. The CFPB notes you'll typically need a cashier's check or wire transfer for this amount at closing, so it's a number to plan around, not just glance at.

• "No closing cost" loans aren't free. The CFPB notes the trade-off is usually a higher monthly payment.
• If a Loan Estimate looks very different from what your loan officer told you, be wary and ask questions.
• Your best bargaining chip is usually having Loan Estimates from other lenders in hand. The CFPB suggests negotiating over a short timeframe after you have a signed purchase contract, and confirming any new lender can close on time if you switch.

1. Request Loan Estimates from at least two or three lenders within a short window.
2. Ask for the same loan type, term and down payment from each.
3. Line up Sections A, B and J side by side.
4. Compare the "In 5 Years" cost of borrowing.
5. Note the cash to close and plan for it.
6. Ask each lender how long their approval and closing typically take, because a strong offer depends on a lender who can perform on time.

Choosing a lender is your decision, and I'm happy to help you think through the timing so your financing supports a strong offer on the home you want. If you're starting to plan your purchase, call or text me at (805) 400-5543, email CentralCoastLiz@gmail.com, or reach out through my contact page.

Liz Anderson, Broker/Owner, Central Coast Premier Realty | DRE #01462145

General information, not financial or legal advice. Talk with a licensed mortgage professional about your specific situation.

Equal Housing Opportunity.

• CFPB, "What is a Loan Estimate?"
• CFPB, "Request and review multiple Loan Estimates"
• CFPB, "Review your Loan Estimates"