In a world where comparison shopping has become second nature, it is a shocking statistic from the Consumer Finance Protection Bureau (CFPB) that 77% of homeowners apply with a single lender. As consumers, we regularly select certain airlines or flight times to save just $20-30, we maniacally compare small ticket household goods on Amazon and we even have the tools to keep the car salesman honest. Yet, for our largest transaction, the purchase of our home, we regularly lose $20,000 - $30,000 by not shopping for our mortgage.
This fact becomes slightly less alarming when put into context. First, mortgage rates for the identical consumer profile can vary by as much as .50%. Said another way, on a $300,000 loan the cost of getting a 4.50% vs. a 4.00% rate is approximately $34,000...for the exact same product! Second, the mortgage comparison process has been made needlessly complex by the mortgage salesperson, who is incentivized to prevent shopping. Third, shopping for a mortgage has been made needlessly difficult.
After all, who wants to provide dozens of pages of personal, income and asset information and then do it all over five or six times at other lenders? Lastly, while the CFPB has worked to make apples-to-apples mortgage comparison shopping easier with the creation of a document called the Loan Estimate (LE), this effort has largely fallen short because most lenders decline to provide an LE without a completed loan application.
The Loan Estimate (LE)
If you can get one, the LE is a summary of your all your relevant loan information including rate, and total loan costs. The costs are generally well categorized and itemized, but lenders still have some discretion over how they name certain fees which can make it difficult to compare. The document includes three pages of dense transaction and cost data, which makes it difficult to compare and normalize multiple versions.
The Closing Cost Worksheet
It is often far easier to obtain a Closing Cost Worksheet (CCW) from a prospective lender. They will typically ask for basic information about your scenario (purchase price, down payment, property type, loan type etc.) and provide you with a summary document that also includes an itemization of your costs and details on your product and rate. The downside of these documents is that they are relatively non-standard and the format can vary significantly between lenders. In addition, most Closing Cost Worksheets are not binding, whereas the costs provided on a Loan Estimate can only increase in limited circumstances.Most lenders do not vary their closing costs frequently, so it can be a decent proxy.
Back of the Envelope Offer
Although lenders are required a Loan Estimate if you submit an application, sometimes, they will send a quote in a far less formal format, perhaps as an Excel file or Word document. These are even less ideal than closing cost worksheets in that their formats can also vary significantly between lenders and often they will leave off important data points such as a full list of fees.
A New Way to Compare
We believe there’s a better way to compare your loan options and we’ve developed software to do so. Do you have a couple of LEs or Closing Cost Worksheets and want to understand your best offer? Upload them to our Loan Offer Comparison Tool and we’ll do the work for you and provide an easily understood comparison and recommendation. Have you chosen a lender but want to keep them honest and improve your negotiating leverage? Send us your LE or CCW and we’ll anonymously shop your loan to a network of lenders to see if we can get you a better offer.
Our Loan Offer Comparison Tool is completely free to you. We believe the time has come to get armed with the information you need to get the deal that you deserve.