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Most of us like to know our options when making a decision.
Knowing your options is incredibly important when you’re about to make what is most likely the most significant financial decision of your life – buying and financing a home.
I say that not to freak you out, but rather to emphasize how important it is to understand how to compare mortgage loan offers. Fortunately, there are many built-in support systems to ensure that you, as consumers, are fully informed before buying a home and getting your mortgage.
Do you already have some loan options to compare? Use our Mortgage Loan Comparison Calculator to compare them side-by-side.
Loan Option 1
Loan Option 2
Find a Professional Loan Officer
Let’s start with the obvious. Whenever you’re doing something hard or figuring out something for the first time, it’s wise to find someone with expertise. In the case of a mortgage, that means finding a professional loan officer.
Selecting a good loan officer is probably your most important decision.
A smart and experienced loan officer is going to be able to offer you the most options. They’ll quickly assess your financial situation, understand your home buying or refinance goals, and then research and structure the best mortgage options for you.
Of course, experience and expertise are crucial. Still, an exceptional loan officer is one that also listens intently to your needs and desires and carefully walks through each detail of your mortgage loan options.
You should feel entirely comfortable asking questions and getting clarifications on anything that you don’t completely understand.
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Clarify Your Goals and Priorities
Another helpful tip to compare mortgage loan offers is to take a step back and think through your personal goals and priorities for buying a home or refinancing your current home. Often it can be challenging to compare the mortgage options presented by your loan officer if you’re not sure what you’re reviewing or what you need.
Here are a few things to consider in clarifying your goals.
Buying a New Home
- When do you want to buy a home? How flexible is that timing?
- Why do you want to buy a home?
- Where do you want to buy a home? How flexible is that location?
- How long do you plan to live in this home?
- How much of a down payment can you afford?
- What is my credit score? Is it excellent, good, fair, poor?
Refinancing Your Current Home
- Why do you want to refinance your home? Get cash out, a lower rate or payment, shorten your term?
- What is the urgency behind this refinancing?
With greater clarity around your goals and objectives, the right option becomes more evident when your loan officer presents them.
Understanding Your Loan Estimate
Once you have consulted with your loan officer, shared your goals, worked through various options, and filled out a loan application, you’ll be provided a loan estimate.
Loan estimates are the best way to compare loan offers apples-to-apples. So, if you are comparison shopping mortgages, make sure you are comparing actual loan estimates.
A loan estimate is a standardized industry document that is carefully regulated in how it is created and presented. Therefore, once you’re familiar with this document’s features, it becomes straightforward to compare loan offers.
What is a Loan Estimate?
Your loan estimate is a simple three-page document that was put into effect and standardized back in 2015. Every lender is required to prepare and present this document, in the same way, to make comparing loan offers easier for you.
Your loan estimate will provide you simple to read information about your estimated interest rate, monthly payment, and total closing costs. It will also give you insight into what you can expect to pay for taxes and insurance.
It is important to note that this is only an estimate, as the name implies. Your loan estimate will be based on a few essential pieces of information that you provide your loan officer through your application. This information includes:
- Your name
- Your income
- Your social security number (your lender will use this to check your credit)
- Address of the home you plan to buy or refinance
- An estimate of that home’s value
- The loan amount you intend to borrow (the home’s price or value minus any down payment or cash out)
If you compare loan estimates between multiple lenders, you must provide the same (accurate) information to each loan officer.
It is also essential to each loan officer for the same kind of loan with the same features.
As you consult with your loan officer, you should walk through various scenarios and options to get to the best possible mortgage loan option.
These are some of the loan features that you will decide on:
- Loan type
- Rate type (fixed or adjustable)
- Loan term (how long you want to pay on your mortgage)
- Down payment and loan amount
- Any points or credits
- Your rate lock period
Once you have determined your preferred mortgage features and options, you should remain consistent when requesting a loan estimate.
Important Note: Once you have determined, with your loan officer, the loan option and features you prefer, if a different loan officer suggests a new loan or features, ask a lot of questions about why that option is better.
How to Compare Loan Estimates?
Once you have your loan estimate(s) here are the things that you should review:
- Does the loan estimate reflect the loan option that you discussed
- On page one, check your loan term, product, and type
- Also on page one, review your loan amount, interest rate, and monthly principal and interest payment
- On page two, review your loan costs and cash to close
- On page three, compare your total principal paid in 5 years and annual percentage rate
- Finally, check to see if your interest rate is locked
Since loan estimates are standardized and relatively straightforward, this simple checklist should give you a pretty clear picture of your best loan offer.
For most people, it can be a little overwhelming to sort through and compare mortgage loan offers, as well as understand all of the critical nuances to getting the best choice for your circumstances.
We always stress the importance of finding a great loan officer as early as possible in your home buying or refinancing process. A trusted, professional adviser can often save you hundreds at the closing table and often thousands of dollars over the life of your loan.
Take the opportunity to find a great home.com by Homefinity loan officer now!