There are fees associated with getting a mortgage, including those for a credit report, mortgage application, mortgage processing, and property appraisal, among others.
To avoid unwanted surprises, track mortgage-related fees
as you engage in the mortgage process!
Checking your credit can cost as little as $50. With your permission, your lender can request a review of your outstanding loans and repayment history from a third-party credit agency. Some lenders charge a small fee for this task, whereas others include it as part of your mortgage application.
Application and Processing
Most lenders charge several hundred dollars to process a mortgage application. The amount covers the lender’s expertise and time in evaluating your ability to repay a mortgage. Some lenders will credit the processing fee to you at closing.
What is an annual percentage rate or APR?
An annual percentage rate (APR) is the sum of all your borrowing costs expressed as a percentage interest rate charged on the loan balance. For example, after fees, an original interest rate of 5.875% might result in a 6% APR loan, with interest costs approximately $6000 yearly for every $100,000 you borrow. Principal payments are calculated on the length (15, 20, 0r 30 years) of the loan.
Interest rates on variable loans are periodically revised based on financial index changes. Typical indexes include the Federal Funds Rate and Treasury Bill.
When mortgage companies compete by offering lower interest rates, they may charge a one-time prepaid interest amount calculated as a percentage of the loan. Also known as points, the percent may range from .25% to 2% of the loan balance. The amount is usually paid up front. Points are, however, tax deductible.
Lenders hire experienced, independent appraisers to evaluate the purchase price of a property. Appraisals include consideration for the condition and size of the home compared with comparable recent sales in the same neighborhood.
Appraisals help ensure the purchase price is not too high. They also give the lender confidence about the potential for getting repaid when a borrower defaults on her or his loan and the lending institution must sell the property. Appraisals vary in cost, depending on the property, appraisal type, and region.
You also can expect other fees for processing your loan, including those for a notary, courier, and county records.
Prepayment penalties vary widely. For this reason, it is important to ask your lender about penalties for refinancing or selling your home during the time penalties apply.