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Shopping for a Mortgage Loan

When shopping for a mortgage loan, most people look for a mortgage lender that offers the lowest mortgage rate available. While getting a low interest rate is important, it should not be the only cost that you compare.

-- Credit Tip by FindLocalBanks.com
Federal law requires that all creditors must state the cost of their credit in terms of an Annual Percentage Rate (APR). This rate takes into account how the loan is repaid on a yearly basis, and allows you to accurately compare the cost of credit among lenders. For example: You borrow $1000 for one year and pay a finance charge of $100. If you can keep the entire $1000 for the whole year and then repay $1100 at yearís end, you are paying an APR of 10 percent. But if you repay the $1000 and finance charge (a total of $1100) in twelve equal monthly installments, you donít really get to use $1000 for the whole year. In fact, you get to use less and less of that $1000 each month. In this case, the $100 finance charge amounts to an APR of 18 percent.

Many lenders will advertise extremely low interest rates in order to entice would-be borrowers to apply. Mortgage lenders that offer lower than average interest rates may be charging additional fees. The best way to find out these fees is to request that the lender will provide you with a Good Faith Estimate of closing costs. If a mortgage lender has nothing to hide, they should be willing to provide you with this document upon request.

-- Credit Tip by FindLocalBanks.com
The finance charge is the total dollar amount you pay to use credit. It includes interest costs and other costs, such as service charges and some credit-related insurance premiums. For example: Suppose you borrow $1000 for one year, and the interest is $100. If there is a service charge of $10, the finance charge will be $110.

MORTGAGE LENDER FEES TO LOOK FOR ON THE GOOD FAITH ESTIMATE

FEES DESIGNATED WITH AN '800'OR A '1300' NUMBER

By law a mortgage lender has to categorize their fees on the standardized HUD-1 (HUD-1A for refinancing) settlement forms. Most of these fees will be designated with a number from 800 to 810. Mortgage lenders will include these number designations on their Good Faith Estimates. Miscellaneous mortgage lender fees may also be designated with a number from 1300 to 1310.

Fees that fall within these designations are the fees that can change from lender to lender, so these are the fees you should be comparison shopping!

  • DISCOUNT POINTS

  • Discount points are a way for a borrower to lower (or discount) his/her interest rate. By paying this fee at the closing/settlement, the borrower can lower the mortgage loan's interest rate by a set amount. The number of points that is charged can vary (depending on borrower preference) and are expressed as a percentage of the amount borrowed. For example, 1 point on a $100,000 mortgage loan would be 1% of 100,000, or the equivalent of $1,000.

  • ORIGINATION FEE

  • This is a fee that a lender charges the borrower for the privilege of obtaining a mortgage loan. This fee will cover a mortgage loan officer's commission as well as other expenses of doing business. This fee can vary by mortgage lender, but many will charge 1% of the mortgage loan amount.

  • PROCESSING FEE

  • This is a fee some mortgage lenders charge to offset expenses incurred while processing your mortgage loan application.

  • UNDERWRITING FEE

  • This is a fee some mortgage lenders charge to offset some expenses incurred while processing your mortgage loan application.

  • APPRAISAL FEE

  • This is a fee mortgage lenders will pay a professional to appraise the value of the property to be financed.

  • CREDIT REPORT FEE

  • This is a fee mortgage lenders will pay a credit reporting agency to obtain the borrower's credit report.

  • INSPECTION FEE

  • This is a fee some mortgage lenders require in order for a professional inspection to be conducted on the property to be financed.

Some of these fees may also be designated with the letters 'P.O.C' These letters stand for 'Paid Outside of Closing'. Such fees are typically paid in advance by the borrower for items like the credit report and property appraisal.

The Good Faith Estimate will include other fees, but many of these are usually not set by the. Such fees will include any fees designated with a 900-1210 number.



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