Know the Numbers

Credit Report

A review of your credit history from a third party credit agency can typically be ordered by the lender with your permission for a cost under $50. This review will include an evaluation of your outstanding loans and your repayment history, and will help the lender determine your creditworthiness and ability to repay a loan. It is an important step in the loan process and can have a significant impact on the terms and interest rates offered to you.

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.

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 lenders are vying for business by providing lower interest rates, they may impose a one-time fee called "points" that is pre-paid and calculated as a percentage of the loan. This fee can range from 0.25% to 2% of the loan balance and is generally paid upfront. It is important to note that points are tax-deductible, so it's a good idea to seek advice from your tax advisor on this matter.

Appraisal Cost

Lenders usually hire independent appraisers who are experienced and well-versed with property evaluations. These appraisers compare the property's purchase price, condition, and size with recent neighborhood sales to determine the fair value of the property. The appraisal helps ensure that the purchase price is reasonable and also gives the lender confidence that they will be able to recover their money in case the borrower defaults. The cost of appraisal varies based on factors such as the type of appraisal, the property being appraised, and the region.

Miscellaneous Fees

During the loan processing, you can expect to see different charges, including notary, courier, and county recording fees. These charges may vary depending on the region and the lender. The notary fee covers the cost of a licensed notary public to witness the signing of your loan documents. The courier fee is for the delivery of documents from the lender to the title or escrow company. The county recording fee covers the cost of recording your loan and deed with the county where the property is located.

Prepayment Penalties

Penalties for refinancing or selling a property can vary greatly among lenders. It is important to be aware of whether your lender charges such penalties, as well as the length of the period during which they apply. By understanding these details in advance, you can avoid any surprises and potentially save yourself a significant amount of money in penalties.