Understanding the Real Cost of Your Mortgage

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When you apply for a mortgage to buy your dream home, you will need to pay more than the loan’s principle and interest. Understanding the fees that are part of your loan is the key to protecting your financial future. Agreeing to pay more than what you can truly afford puts you at a risk for foreclosure should your financial situation change.

The types of fees you will pay can vary, but there are a few basic loan fees that you will want to be familiar with as you apply for your home loan. The first fee you will be charged is the loan origination fee, which includes an application fee and the charges for reviewing your credit report. Closing costs, sometimes called settlement fees, are charges you must pay at the time you receive your loan. These can include taxes, title insurance, appraisal fees, or attorney fees. Points are a form of prepaid interest that helps you receive a lower mortgage rate. One point is equal to one percent of your loan amount.

Some loan fees must be paid immediately, while others are payable when you actually receive your loan. In certain circumstances, you may be able to finance these fees as part of your loan. However, this will often result in a higher interest rate.

There are consumer protection laws that help provide you with the information you need to make an informed decision about your home loan. The Good Faith Estimate is a document lenders are required to provide when you apply for your loan that lists the approximate charges for your loan. Before your loan is finalized, the federal Truth in Lending Act requires that lenders provide borrowers with a full disclosure of the cost of obtaining credit and the terms of the loan agreement.

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