Know the numbers
Credit Report
The cost of obtaining and reviewing your credit information can vary depending on the lender and loan program. With your authorization, the lender will generally obtain your credit report from one or more credit reporting agencies to review your credit history, outstanding debts, and repayment history as part of the mortgage application process.
Application / Processing Fee
This fee may be charged to cover some of the lender’s costs associated with processing and evaluating your mortgage application. The amount varies by lender and loan program, and some lenders may offer credits or other arrangements at closing. Be sure to ask your lender which fees apply before submitting your application.
What is APR?
The APR, or annual percentage rate, is a broader measure of the cost of borrowing that incorporates the interest rate and certain finance charges associated with the loan. Because APR can help you compare different loan offers, it is important to review both the interest rate and APR when evaluating mortgage options.
For example: A mortgage may have a stated interest rate of 5.875%, while the APR may be higher after certain applicable fees and finance charges are included in the calculation. Your lender can provide a Loan Estimate showing the applicable interest rate, APR, projected payments, and estimated closing costs for your specific loan.
Indexes
The interest rates on adjustable-rate mortgages may change periodically based on the terms of the loan and changes in a specified index. Common indexes can include the Secured Overnight Financing Rate (SOFR) and other published market benchmarks. If you are considering an adjustable-rate loan, ask your lender about the index, adjustment frequency, rate caps, and potential payment changes.
Points
Mortgage points, sometimes called discount points, are upfront charges paid to the lender in exchange for a lower interest rate. One point generally equals 1% of the loan amount, although the cost and benefit of purchasing points can vary. Ask your lender whether paying points makes sense for your financial situation and how long you may need to keep the loan to potentially recover the upfront cost. Consult your tax advisor regarding the potential tax treatment of points.
Appraisal Cost
Lenders typically require an appraisal when appropriate to help determine the property’s market value and assess the property as collateral for the loan. An independent or third-party appraiser evaluates factors such as the property’s location, size, condition, features, and comparable recent sales. Appraisal costs vary depending on the property type, complexity of the appraisal, and location.
Miscellaneous Fees
Expect to see various charges associated with processing and closing your mortgage. Depending on the transaction, these may include recording fees, notary fees, credit-related charges, courier or document fees, title services, and other lender or third-party costs. Your Loan Estimate and Closing Disclosure will provide important information about applicable fees.
Prepayment Penalties
Prepayment penalties are not included in every mortgage and can vary depending on the loan program and lender. Before committing to a loan, ask whether a prepayment penalty applies, under what circumstances it may be charged, and how long the penalty period lasts. Your lender can explain the specific terms and conditions of your loan.