How some lenders make their cash-to-close look smaller than it actually is
If you’re shopping mortgages and you’ve gotten Loan Estimates from a few different lenders, you’ve probably noticed they don’t always look apples-to-apples. The interest rate might be similar, but the bottom-line “cash to close” can vary by thousands of dollars.
Some of that difference is real. Some of it is a quiet game lenders play to make their offer look better than it actually is — and the borrower usually doesn’t find out until they’re sitting at closing 30 days later.
Here’s what’s happening, and how to read a Loan Estimate so you don’t get caught.
What lenders control vs. what they don’t
A Loan Estimate has three categories of charges, and they’re treated very differently under federal regulation:
1. Charges the lender controls directly (Section A on the LE)
These are things like origination charges, discount points, lender credits, and underwriting fees. The lender quotes these and is legally required to honor them at closing within strict tolerances. If they quote $1,200 in origination, they can’t show up to closing with $1,800.
2. Charges the lender doesn’t control, but is closely connected to (Sections B and C)
These are services where the lender picks the vendor — title insurance through their preferred title company, appraisal through their AMC, credit report fee, etc. These have a 10% tolerance — they can move up to 10% at closing without the lender being required to absorb the difference.
3. Charges the lender doesn’t control at all (Sections E, F, G — taxes, government recording fees, prepaid escrows, homeowners insurance)
These are the property taxes, the daily interest from closing to first payment, the homeowners insurance premium, the months of taxes and insurance the lender collects upfront for the escrow account, and the government recording fees.
This is where the manipulation happens.
The cash-to-close trick
Property taxes and homeowners insurance estimates on a Loan Estimate are technically “estimates” — and the lender isn’t required to use accurate numbers. They’re required to use reasonable numbers, but “reasonable” is a wide range.
A lender who wants their Loan Estimate to look more attractive can do any of the following:
- Quote property taxes based on the seller’s old assessed value instead of the new buyer’s likely reassessed value
- Use the lowest homeowners insurance estimate available rather than what you’ll actually pay
- Underestimate the months of prepaid escrows required at closing
- Quote outdated transfer tax or recording fees if state/county rates changed
- Use a generic per-day interest figure that doesn’t match your actual closing date
Each of these adjustments lowers the “Estimated Cash to Close” number — sometimes by $3,000 to $8,000 — without changing anything the lender actually controls.
By the time you get to closing, the Closing Disclosure shows the real numbers. The taxes are higher. The insurance is higher. The escrow setup is more. And by then, you’re 30 days in. You’ve spent on inspections and appraisals. You’ve planned your move. You can’t easily walk away over $5,000.
How to read an LE so this doesn’t happen to you
When you’re comparing Loan Estimates side by side, ignore the “Cash to Close” number at the bottom. It’s the easiest number to manipulate and the least useful for comparison.
Instead, focus on the lender-controlled section:
Section A — Origination Charges
This is the most important number on the LE. It includes:
- Origination fees
- Discount points (if buying down rate)
- Application fees
- Underwriting fees
- Any other fees the lender themselves charges
This is what the lender is actually being paid for the loan. Two lenders quoting the same rate should have similar Section A totals if they’re priced honestly. Big differences here mean one lender is charging you more than the other for the same loan.
Lender Credits
A lender credit is a negative charge — the lender gives you money to offset closing costs in exchange for accepting a slightly higher rate. Real credits, transparently disclosed, are fine. They’re a useful tool.
What’s not fine is when a lender shows a credit on the LE but then it shrinks at closing. That happens occasionally, and it’s a red flag about who you’re working with.
Compare those two things across all your LEs. That’s the apples-to-apples comparison.
What to ignore in the side-by-side
Sections B, C, E, F, and G — title, taxes, insurance, prepaids, recording — should ultimately be roughly the same across all your Loan Estimates if the lenders are using accurate numbers. They’re for the same property, same closing date, same insurance, same taxes.
If one lender’s tax and insurance numbers are dramatically lower than the others, that’s not them being more efficient. That’s them quoting numbers that won’t hold up at closing.
What I do differently
When I prepare a Loan Estimate for a client, I use the actual local property tax rate based on the new assessed value. I use a real homeowners insurance quote — not a placeholder. I calculate prepaid escrows based on the actual closing date. The numbers I quote at the start are the numbers you’ll see at closing, within normal small adjustments.
That sometimes means my LE looks like it has a higher cash-to-close than someone else’s. But the gap closes by the time we get to closing — because their numbers go up to reality, and mine were already there.
If you’re shopping mortgages and you’re not sure how to compare offers, send me what you have. I’ll look at the LEs side by side and tell you what they actually mean. Even if you don’t end up working with me, you’ll know what you’re looking at.
I’ll compare them honestly — even if you don’t end up working with me.
Email or text me your LEs and I’ll tell you what each one actually means, where the manipulation might be hiding, and what to ask each lender to clarify.