Mistake #1 – Focusing on Interest Rate Instead of Total Loan Cost

The most common mistake I see investors make is focusing on interest rate alone. An interest rate, by itself, does not tell the full story. Lenders use different pricing structures to make rates appear more attractive, and if you only look at the headline number, you’re almost guaranteed to miss what actually matters.

Here’s a simple example. One lender quotes you a 7% rate. Another says they can do 6.75%. On the surface, the second option looks better. But unless you are comparing a fully locked Loan Estimate, you’re not comparing the same thing.

If the 7% loan has no points and the 6.75% loan requires one point, the comparison is incomplete. You would need to ask what the 7% loan would look like if you also paid one point. That rate might drop to 6.5%, completely flipping the comparison.

To cut through the noise, ask lenders for their par rate on the product with borrower-paid compensation. This removes built-in lender compensation and shows the true base pricing. Not every lender loves this question, but it’s one of the cleanest ways to compare apples to apples.

You should also closely review Section A of the Loan Estimate, which includes processing, underwriting, and administrative fees. These vary widely and often outweigh small differences in interest rate.

Key takeaway:
The lowest advertised interest rate is often not the lowest-cost loan once points, fees, and lender compensation are included.