Financing Process
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Evaluating the Numbers-
Credit Report:
A credit report typically costs under $50; with your permission, the lender orders a complete credit history, including a tally of your outstanding loans and your repayment history from a third party credit agency.
Application / Processing Fee:
This cost, typically a few hundred dollars, covers 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 mortgage companies compete by offering lower interest rates, they may charge 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 procedure helps ensure the purchase price is set accurately, and offers the lender more confidence in getting repaid in the event they are forced to sell the property if the borrower defaults. Appraisal costs vary depending on the property, type of appraisal, and region.
Miscellaneous Fees:
It is not uncommon to incur various charges during the processing of your loan—some common fees include charges for notary and courier services, 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 time period during which the penalties apply.
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