Red Flag #1: Origination Fee Above 1.5%
Origination fees above 1.5% of loan amount warrant scrutiny. On a $360,000 loan: 1.5% = $5,400. Ask: what specifically is included in the origination fee? A legitimate origination charge covers underwriting, processing, and administrative costs. Fees above 1.5% that aren’t buying down the rate are likely excessive.
Junk fees are small, vaguely named charges that add up significantly: 'administrative fee' ($250), 'processing fee' ($395), 'email fee' ($30), 'document preparation fee' ($200). Individually small; collectively $875+ that may be entirely negotiable or eliminable. Each should have a clear service description.
Red Flag #2: Large Difference Between Rate and APR
APR reflects rate plus amortized fees. If APR is more than 0.3% above the quoted rate on a 30-year loan: this indicates high lender fees embedded in the loan. Compare: a clean 6.75% loan might show APR of 6.83% (0.08% gap — low fees). A fee-heavy 6.5% loan might show APR of 7.12% (0.62% gap — $5,000+ in fees).
Red Flag #3: Rate Quoted Without Points, But Points Appear on LE
If a lender quotes a rate verbally 'with no points' but the Loan Estimate shows discount points, the quote was misleading. Discount points are 1% of loan = specific dollar amount each. They should be explicitly agreed to, not buried in the estimate. Always ask: 'Does this rate include discount points?'
Red Flag #4: Unusually Low Cash-to-Close Estimate
A very low cash-to-close estimate (lower than the 2.5–4% of purchase price rule of thumb) may indicate missing or underestimated prepaids, incorrect escrow calculation, or omitted transfer taxes. Request a detailed breakdown of every item in the estimate. A surprise at closing is more expensive than a corrected estimate before locking.
Red Flag #5: Required Services with No Cost Shown
The Loan Estimate must show specific dollar amounts for all services. If Section B (services you can’t shop) shows 'TBD' for appraisal, title, or other required items, the estimate is incomplete. Demand complete estimates before comparing lenders — TBD items are often where surprises appear at closing.
Get a Complete Estimate to Validate Your Loan Estimate
Use the calculator to cross-reference your LE — spot discrepancies before they become surprises.