Know the Numbers

Credit Report

Typically, it costs under $50 to check your credit but in Maryland we have a law that entitles residents free access once a year to their credit reports. In addition, the Federal Fair Credit Reporting Act requires the top three credit reporting agencies to supply a free copy once a year of their reports. (Find out more, along with contact information for the “Big Three” here at the Maryland Attorney General’s page.) 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 of 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. Lenders are required to tell what the APR is on your loan.

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).

For a much more in-depth explanation of APR and how it affects your mortgage payment, go to Bankrate.com’s page “Explaining mortgage rate and APR”  (opens a new window).

Points of Interest

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 adviser.

Appraisal Cost

Lenders hire experienced, independent professional appraisers to evaluate the property’s purchase price, condition and size compared to similar recent neighborhood sales. This 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. If the appraisal “doesn’t come in” that means the amount the property appraises for is less than the offered purchase price so the bank is reducing the amount of money it wants to lend on that particular property–and if you still want the deal, you’ll have to find money from other sources. It’s not unheard of to get another appraisal done that does meet bank criteria; the process has a lot of subjective analysis around it.

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.

Indexes

The interest rates on variable loans readjust periodically based on changes in an index. Typical indexes include the Federal Funds Rate, Treasury Bills.

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