A Loan Estimate (LE) form is not just required by law. Its a powerful weapon in the battle for lower mortgage costs. If you want to negotiate a better mortgage rate, the Loan Estimate form is your pal, your buddy, and your ally. Mortgage lenders must provide one within three business days when you apply for a mortgage. But many will supply the disclosure when youre shopping for a home loan.
Getting a mortgage is one of the biggest financial transactions most people ever make. With so much at stake it pays to shop around and compare loan estimates from multiple lenders to find your best offer. But can you share the loan estimates you receive with competing lenders to negotiate an even better deal? Let’s explore the ins and outs of shopping loan estimates.
What is a Loan Estimate?
First, what exactly is a Loan Estimate? When you apply for a mortgage lenders are required by law to provide you with a Loan Estimate within 3 business days. This detailed 3-page form outlines important facts about the loan program and terms the lender is offering you.
Key details include
- Interest rate
- Projected monthly payments
- Total closing costs
- Cash needed at closing
- Projected taxes and insurance
- Loan terms and features
- Projected total interest paid over the life of the loan
The Loan Estimate helps you compare expected costs across multiple lender offers side-by-side. It provides the basis for comparing “apples to apples” when shopping for your mortgage.
Why Shop Multiple Loan Estimates?
Research shows that comparing multiple Loan Estimates can save borrowers 0.5% to 1% on their interest rate. On a $300,000 loan, that equals $1,500 to $3,000 in savings over the life of the loan.
Each lender has their own available rates and fees they can offer you based on their specific loan products, relationships with investors, and more. The variance between lenders means one may be able to beat their competitor’s pricing.
Shopping Loan Estimates essentially allows you to hold a competitive bidding process for your mortgage. You force lenders to put their best offer forward to try and win your business.
Can You Share Loan Estimates with Other Lenders?
Now we get to the core question – once you receive a Loan Estimate from Lender A, can you provide a copy to Lender B and ask if they can beat the terms with their offer?
The short answer is yes, you can share the Loan Estimates you receive with competing lenders during the mortgage shopping process.
Legally, a Loan Estimate is not considered confidential or proprietary information. It is an estimate extended to you, the borrower, to outline preliminary loan terms being offered for your evaluation.
The rules do not prohibit borrowers from disclosing their Loan Estimates or using them to negotiate with other lenders. As the borrower, you have full discretion over whether to share your Loan Estimates.
Tips for Sharing Loan Estimates
If you decide to supply a competitor’s Loan Estimate to another lender, here are some tips:
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Black out or remove any of your personal financial information and account numbers before sharing. No need to reveal specifics.
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Confirm the Loan Estimate clearly shows the lender name, interest rate, closing costs, and other key terms. The lender needs enough detail to understand the offer and formulate a response.
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Note if the rate on the Loan Estimate is locked or floating. A locked rate carry more weight versus a preliminary float rate.
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Provide some context on why you are sharing it. Example: “Lender A offered this. Can you beat their interest rate and closing costs?” Specificity helps.
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Give the lender a deadline to respond with their revised offer, so you can keep the process moving.
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Ask the lender to provide their revised offer in the standard Loan Estimate format to facilitate easy comparison.
Strategies for Negotiating Loan Estimates
Once you start sharing Loan Estimates, here are some negotiating strategies to pursue the best deal:
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Focus negotiations on your top priorities – Is a super low rate most important? Or do you care more about lowering closing costs? Tell lenders what matters most so they can tailor their offer.
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Use competing Loan Estimates for leverage – Supplying a competing offer frequently motivates lenders to work hard to beat it. The prospect of winning your business makes them sharpen their pencils.
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Ask lenders to explain charges – If you don’t understand a fee or it seems high, ask lenders to break it down. Unnecessary junk fees can sometimes be removed.
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Request lender credits – Ask lenders to credit back part of their origination fee to lower your closing costs. Most will accommodate a reasonable credit request to win your loan.
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Lock your rate as soon as possible – Once you receive an attractive rate offer, lock it quickly. You want to secure a low rate with limited risk of it increasing later.
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Set firm expectations – Be upfront that you are speaking with multiple lenders and will choose the most competitive overall offer. This creates incentive for lenders to put forth their top terms.
Pros of Shopping Loan Estimates
Utilizing a competitive Loan Estimate shopping process offers significant benefits:
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Gain negotiating leverage and power over the lending process
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Force lenders to put forth exceptional offers to earn your business
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Increase chances of being approved by having lenders compete for your loan
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Create urgency so you receive the best lenders’ first offers rather than gradual improvements
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Diminish any lender bias by introducing direct competition
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Uncover the lowest possible rates and best overall loan terms through the power of the marketplace
Cons of Sharing Loan Estimates
While most borrowers should shop and leverage Loan Estimates, there are some potential downsides:
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May annoy lenders by directly involving competitors which could hurt your negotiating position
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Requires closely managing and coordinating the process across multiple lenders
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Can introduce delays if lenders need time to reformulate offers
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Increased risk of credit damage if you apply with too many lenders and trigger numerous hard credit pulls
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Requires vigilance to verify revised Loan Estimates match the terms you negotiated – numbers can mysteriously change
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Does not guarantee improved offers – some lenders may refuse to negotiate further despite competition
Deciding How Many Loan Estimates to Shop
When it comes to shopping Loan Estimates, more is often better. Research shows borrowers who compare 5+ loan offers save the most money. However, at some point diminishing returns set in.
Here are some factors to consider when deciding how many Loan Estimates to shop:
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Your available time and willingness to coordinate applications with multiple lenders
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Hitting thresholds for minimum viable competition – about 3-5 lenders
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Total number of reputable lenders in your local market
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Checking your credit score impact if applying with too many lenders
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Whether improved offers are still forthcoming or have plateaued
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Your personal cost/benefit tradeoff between effort and potential savings
Aim to strike the right balance based on your specific situation. Just try to avoid applying with only one lender – significant savings are left on the table.
The Bottom Line
Comparing multiple lender Loan Estimates is a proven way for borrowers to unlock substantial mortgage savings. Sharing your Loan Estimates with competitors allows you to run an efficient quote shopping process and negotiate improved terms. While not necessary, informed borrowers who leverage this strategy tend to save the most money.
Find the best mortgage rate and closing costs
It used to be that mortgage offers were largely beyond understanding. The lender advertised financing at a low rate, but the closing costs might have been high. There were a lot of moving parts to consider, and unless you were a mortgage professional the system was largely stacked against you.
As a result of the 2007 housing crash, the marketplace was ripe for change. The new goal was to make the mortgage system as risk-free as possible. The reforms did away with most prepayment penalties, no-doc loans, mortgages with negative amortization, and 40-year loans. The new rules even required lenders to verify that the borrower had the ability to repay the loan!
And, to a large degree, the reforms have been successful. ATTOM Data Solutions reported last year that foreclosures in the third quarter reached their lowest level in 13 years. Fewer foreclosures mean less risk and less risk leads to lower rates. Everyone wins.
An important part of the mortgage reform effort was the introduction of two federal forms, the Loan Estimate (LE) and the Closing Disclosure (CD). It is the LE which gives borrowers leverage. And that leverage allows you to negotiate a better mortgage rate.
Loan estimate form & delivery
A lender who offers financing must provide a Loan Estimate form within three business days after you apply for a mortgage. In large type and bold print, the form outlines the lenders offer. Here are the major elements to review.
On Page One, you can find the loan amount, interest rate and monthly cost for principal and interest. Importantly, the form asks if these figures can change after closing. Look for three “no” answers.
Youll also see if the interest rate is locked or not locked. If locked, it also must state when the lock expires. If you qualify for financing, the lender must deliver the locked-in rate. But only if the loan closes before the interest rate lock expires.
If settlement is in 45 days, and the lock-in period is 30 days you will need to extend or re-lock your rate. Either option could be costly if rates have increased. Try to get a lock-in period which with a little wiggle room. A delayed closing could cause you to miss the lock-in deadline. Even if the delay is not your fault.
In practice today, there are few mortgages with prepayment penalties. FHA, VA and conforming loans all ban prepayment penalties. However, other programs, especially those that lenders dont sell to investors — may have them.
Prepayment penalties are not illegal, but lenders must disclose them, and penalties must dissolve within three years. Prepayment penalties can be “hard,” which means they apply if you repay the loan for any reason within the penalty phase. Or they can be “soft,” which means they only apply if you refinance your loan — not if you sell the home.
A balloon payment is a large, single payment due at the end of a loan term. Very few loans come with balloon payments. Their advantage is that by basing your loan payment only on part of the principal balance, the lender reduces your monthly payment. The disadvantage is that at some point, you have to repay that large amount — either by selling, using savings or refinancing it.
That can be risky, and that is why balloon payments are legal in very limited circumstances.
The form shows the estimated monthly payments for your loanss principal and interest, mortgage insurance, and escrow (also called “impounds”). “Escrow” can include such costs as property taxes, homeowners insurance, and HOA fees.
If you have a fixed-rate mortgage, the cost for principal and interest remains unchanged throughout the life of the mortgage. However, adjustable rate mortgage (ARM) interest rates and payments can change during the life of the loan. And your taxes, insurance and other escrow costs may also vary.
This section shows the estimated costs to close the transaction. The expenses are detailed on Page Two. Closing costs include lender fees, transfer taxes, title insurance and escrow services, and prepaid items like interest, property taxes and homeowners insurance. Your earnest money deposit is a credit against any costs you have at closing.
You can shop around for certain items listed on Page Two. It can be worthwhile to call several closing agents and compare their prices.
On Page Three, you find your total loan costs for the first five years of the mortgage. You can also see your expected principal reduction.
This is important information which allows you to compare loans from different lenders. You cant negotiate a better mortgage rate unless you know the true costs of each offer. The five-year range is relevant to many buyers because most consumers either sell or refinance long before their loan term ends.
On Page Three, youll find the loanss annual percentage rate (APR). APR is one tool to help consumers compare loans with different interest rates and pricing.
APR expresses different rates and costs as an interest rate. Its supposed to make comparing loans easier.
For example, one $200,000 loan might have an interest rate of 3.5% and a cost of $5,000. Another loan might be a no-cost loan and have a 3.625% interest rate. Which is better? The first loans APR, which incorporates the loan costs plus the interest rate, is 3.7%. The second loans APR is still 3.625% because it has no loan costs. So a loan with a lower rate can still be the more expensive option.
Note that APR has some limitations. The numbers are only accurate if you keep the loan for its entire term. And you can only compare the same kind of loan — 30-year fixed to 30-year fixed, 5/1 ARM to 5/1 ARM, etc.
What NOT to tell your LENDER when applying for a MORTGAGE LOAN
Do I need a loan estimate?
For preliminary shopping, a worksheet is okay. But once you have a property address, request Loan Estimates from a number of lenders and get a Loan Estimate from each of them before locking in and committing to a lender. You might be in a hurry when your offer is accepted.
Should I get a loan estimate before closing?
But once you have a property address, request Loan Estimates from a number of lenders and get a Loan Estimate from each of them before locking in and committing to a lender. You might be in a hurry when your offer is accepted. But this little bit of extra time will not delay your closing and may give you a much better rate.
What is a loan estimate?
A Loan Estimate tells you important details about a mortgage loan you have requested. Use this tool to review your Loan Estimate to make sure it reflects what you discussed with the lender. If something looks different from what you expected, ask why.
How to compare lenders for the best rate?
“You recommend in your article to compare lenders for the best rate using the Loan Estimate form. But in order to compare lenders using a Loan Estimate Form, you have to have a specific house address and a price to tell the lenders in order to get that Loan Estimate form. Which obviously you don’t have yet if you are getting pre-approved.