Read a mortgage offer in three passes

First pass: check the loan itself

For most home mortgages, the Loan Estimate is the standard three-page summary of the proposed loan. Compare estimates for the same loan amount, type, and term, issued close together. A quote from a different day or for a different product may not be directly comparable.

Check whether the rate is fixed or adjustable and whether it is locked. For an adjustable-rate loan, ask how far the rate and payment could rise. Also look for unusual features such as a balloon payment or prepayment penalty.

Second pass: build the full monthly budget

Principal and interest are only part of homeownership costs. Review mortgage insurance, property taxes, homeowners insurance, and any costs shown outside escrow. Add expenses such as association dues, maintenance, and utilities to your own budget.

A lender’s lower estimate for taxes or insurance does not necessarily mean its loan is cheaper. Ask why those assumptions differ across offers.

Third pass: compare cash and borrowing costs

• Review origination charges, required services, and lender credits.
• Check estimated cash to close, including the down payment and adjustments.
• Ask how paying points or accepting lender credits changes both upfront cash and the interest rate.
• Use APR as one comparison measure, while remembering that it includes certain borrowing charges and is different from the interest rate.
• Review the five-year comparison on page three, then consider your own expected ownership period.

Keep the trade-off visible

A “no closing cost” label can involve a higher rate or costs rolled into the loan. Ask for an explanation in dollars. APR alone cannot predict future adjustable-rate increases, so compare payment risk as well as price. Request clarification whenever the written estimate differs from the terms discussed.