Exploring loan choices

Learn about loan costs

Choosing a loan isn’t just about the interest rate or the monthly payment. There are many costs associated with getting a mortgage. 

Take the time upfront to learn about these costs and your choices for paying for them. That way, you’ll be better prepared to make the right decision for you when the time comes.

What to do now

Learn more about all the costs associated with getting a mortgage

Mortgages are complex, and getting a better deal on one part of the mortgage often means paying more elsewhere. For example, one mortgage may have a lower interest rate, but higher closing costs than another offer. Watch our short video to get started, then learn about the different categories of costs in detail.  

Consider your choices for paying for these costs

All mortgage loans include some costs that you pay upfront, at the time of closing, and some you pay over time, in your monthly payment. You have some choices for how much you pay, and when.

If you want to lower your interest rate, you can pay points

Points, also known as discount points, are money you pay upfront to your lender in exchange for a lower interest rate. Points increase your closing costs.

If you want to reduce your closing costs, you can ask to receive lender credits 

Lender credits are money you receive from the lender to offset your closing costs. You agree to pay a higher interest rate in exchange for an upfront rebate that is applied to your closing costs.

You can do neither 

You pay all of your closing costs out-of-pocket up front, and get an unadjusted interest rate. Learn more about how points and credits work, and how to decide which option is right for you.


What to know

Points and credits let you make tradeoffs between paying more upfront or paying more in your monthly payments

What’s right for you depends on your situation, how long you expect to be in the home, how much cash you have available for closing, and the lender's specific rates. Learn more about the tradeoffs, and what to consider when deciding which option is right for you.

You can usually shop separately for some of your closing costs

Lenders often allow you to shop for some closing services. Comparison shopping for those services can help you save money. You’ll shop for closing services later on, once you’ve chosen a home, a mortgage loan, and a lender. But if you’re interested in a preview, learn more about shopping for closing costs.

The Annual Percentage Rate (APR) helps you compare options

The APR is a helpful tool for comparing loan options with different interest rates and fees. It takes into account both the interest rate and fees, so you can see which loan is less expensive over the full loan term. Learn more about the APR.

You may see a "no closing cost loan" advertised, but that doesn't mean the closing costs are free

In most cases, you still pay for the closing costs in a “no closing cost” loan. Typically, you pay in one of two ways:

The costs are rolled into the loan, increasing the total loan amount to cover the closing costs

The larger loan means you pay more interest charges over time. In some cases, the increased loan amount can mean you pay a higher interest rate as well.

The costs are rolled into the interest rate

The lender is providing a rebate, known as a lender credit, to cover the closing costs. You pay a higher interest rate for a loan with credits than for a loan without credits.

Either option may be a choice if you’re short on cash for closing.

Sometimes, the seller may pay some or all of your closing costs, but that doesn’t mean the closing costs are free

You would need to negotiate directly with the seller – not the lender – for the seller to pay some of the closing costs. Depending on the particular market in your area, sellers may be more or less willing to pay for some of your closing costs. Typically, sellers might agree to pay closing costs if:

You have agreed to pay more for the home 

A seller will usually require a higher purchase price if they are paying for the buyer’s closing costs. For example, a seller might agree to sell the home for $200,000 and contribute $4,000 to your closing costs. But if you did not ask the seller to contribute to your closing costs, the seller would probably have accepted only $196,000 for the home. You’re still paying the $4,000, just as part of your loan instead of as closing costs. Be aware that in this type of situation, the home may not appraise for $200,000, which could cause problems for your loan.

The home needs repair 

If your home inspection shows that there are costly repairs that need to be made, the seller may offer to contribute to your closing costs instead of making the repairs or reducing the sales price. This reduces your costs at closing, but it doesn’t reduce your overall costs – you will need to spend the money to make the repair yourself after closing.

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Visit our sources page to learn more about the facts and numbers we reference.

The process and forms described on this page reflect mortgage regulations that apply to most mortgages.