How we compare Loan Estimates
Oftentimes we have clients that want us to offer a better deal than another lender, and we have to explain how we already are. When we look at two LEs, we compare A thru E less J. It's simple, but there is a little nuance to it that we thought could be valuable to borrowers. Below we go through comparing page 2 of a Loan Estimate at KBMB, step-by-step for both transparency and as a tool for you to use yourself.
1. Calculating The True "Lender Costs"
With page 2 infront of you, add together the costs for "A. Origination Charges" and "B. Services You Cannot Shop For." This contains everything the Lender is going to charge you between both their fees as well as any 3rd party services they will have to undertake for you. These are the base costs you should really be comparing between lenders. You should also note that if you are receiving a lender credit in section J, it should be considered part of section A and therefore our calculation.
3. Calculating Titlework
"C. Services You Can Shop For" is something we see clients worry about too often for little reason. Most of these costs are title companies, and in many states a lot of the costs are regulated and exactly the same. If you do find that one loan estimate has significantly lower costs for title work, simply ask the loan officer who the title company is. Call the title company, explain you're looking to close a transaction, and ask if they can do the same thing if you borrow with another lender. Very often you can save some money by letting your lenders shop for you. Otherwise use the numbers each lender provides.
3. Setting Government Costs Equal
"E. Taxes and Other Government Fees" should be equal or fairly close to it. Your state and local government do not cut deals with certain lenders to give them a better price. Ask why if one lender is drastically different from another, but for the purposes of comparing loans, you should pick whichever you believe is most accurate out of what should be a very close set of values between different LE's and use it for all the lenders for consistency.
4.Bring It All Together
These costs, sections A through E on the loan estimate (less any lender credits in section J) are what we consider the cost of refinancing to be and what we suggest you should generally be comparing between lenders. You should sum them up, less any lender credits in section J, and use that number to compare the otherwise identical LEs.
We ignore sections F, G and H for our calculation because they can vary widely and lenders cannot be held accountable for what they put there on a LE. They still have a purpose, and shouldn't be overlooked, but comparing them to pick a lender is almost entirely useless.