Get to know loan costs

What to do now

Get to know all the costs associated with a mortgage

Mortgages are complex. Getting a better deal on one part of the mortgage often means paying more elsewhere. For example, make sure to compare loan closing costs as well as interest rates. Watch our short video to get started, then find out more about the different categories of costs.

What to know

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

Choosing points or credits 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.

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, once you’ve chosen a home, a mortgage loan, and a lender. But if you’re interested in a preview, read 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. APR calculates the interest rate plus fees, so you can see which loan is less expensive over the full loan term. Understand more about the APR.

You might see advertisements for "no closing cost” loans, 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. In such a case, these costs are either completely covered by a lender credit (paid for through a higher interest rate) or rolled into the loan through a higher loan balance.

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

You need to negotiate directly with the seller – not the lender – for the seller to pay some of the closing costs. Depending on the market in your area, sellers may be more or less willing to pay 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 usually requires 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 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 need to spend the money to make the repair yourself after closing.