KNOW THE NUMBERS
Credit Report
Typically, it costs under $50 to check your credit. With your permission the lender will order a review of your outstanding loans and your repayment history from a third party credit agency.
Application / Processing Fee
This cost, typically a few hundred dollars, is charged to cover the lender’s work to evaluate your ability to repay the loan. Some lenders will credit this back to you upon closing.
What is APR?
The APR, or annual percentage rate, is the sum total of all your borrowing costs expressed as a percentage interest rate charged on the loan balance.
For example: After fees, the original interest rate quote of 5.875% might work out to a 6% APR loan, where the interest costs about $6,000 per year for every $100,000 borrowed, and the principal payments are calculated based on the length of the loan term (for example 15, 20, or 30 years).
Indexes
The interest rates on variable loans readjust periodically based on changes in an index. Typical indexes include the Federal Funds Rate, Treasury Bill.
Points
When mortgage companies are competing by offering lower interest rates, they may charge you a one-time pre-paid interest payment calculated as a percentage of the loan. Called points”, this may range from 0.25% to 2% of the loan balance, and is usually paid up front. Points are tax-deductible; consult with your tax advisor.
Appraisal Cost
Lenders hire experienced, often independent appraisers to evaluate the property’s purchase price, condition and size compared to similar recent neighborhood sales. This helps ensure the purchase price is not too high, and gives the lender more confidence in getting repaid in the event they are forced to sell the property if the borrower defaults. The appraisal costs vary depending on the property, type of appraisal, and region.
Miscellaneous Fees
Expect to see various charges incurred in the processing of your loan which might include notary, courier, and county recording fees.
Prepayment Penalties
These vary widely, so be sure you know in advance if your lender will charge a penalty if you refinance or sell, and the certain period during which the penalties apply.