Understanding the costs involved in financing a home can help you feel confident and prepared throughout the loan process. Below is a breakdown of common fees and terms you may encounter when applying for a mortgage.
Credit Report
Typically, it costs under $50 to check your credit. With your permission, the lender will request a report from a third-party credit agency that outlines your outstanding loans and repayment history.
Application and Processing Fee
This fee—usually a few hundred dollars—covers the lender’s work to evaluate your financial profile and ability to repay the loan. Some lenders may credit this fee back to you at closing.
What Is APR?
APR (Annual Percentage Rate) represents the total cost of borrowing, expressed as a percentage. It includes the interest rate plus certain fees associated with the loan.
Example:
An interest rate of 5.875% may translate to a 6% APR after fees. This could equal approximately $6,000 per year in interest for every $100,000 borrowed, while principal payments depend on the loan term (15, 20, or 30 years).
Indexes
For variable-rate loans, interest rates adjust periodically based on changes in a financial index. Common indexes include:
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Federal Funds Rate
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Treasury Bills
Points
When lenders offer lower interest rates, they may charge points, which are prepaid interest fees calculated as a percentage of the loan amount.
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Typically range from 0.25% to 2% of the loan balance
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Paid upfront at closing
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Generally tax-deductible (consult your tax advisor)
Appraisal Cost
Lenders require an appraisal to confirm that the home’s value supports the purchase price. Independent appraisers evaluate the property’s condition, size, and recent comparable sales in the area.
Appraisal costs vary depending on:
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Property type
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Appraisal method
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Location
Miscellaneous Fees
You may also see smaller fees associated with loan processing, including:
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Notary fees
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Courier fees
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County recording fees
Prepayment Penalties
Some loans include penalties if you refinance or sell the home within a specific period. These penalties vary widely, so it’s important to understand:
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Whether a penalty applies
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The time frame during which it is enforced
