Now that you are more familiar with the loan process, there is still one more thing to learn. Your APR rate can also mean "Add Points Retroactively."

The APR that you are quoted at the time you place your loan application does not fully include the final costs of the loan. The APR that your lender quotes you only covers the items over which the lender has control -- the lender's fees and rate. Anything else is a variable.

On your good faith estimate, these variables are any items past the 800 series of numbers -- the items payable in connection with the loan. Translation: lender's fees.

The items required to be paid in advance (900 series) are the interest prepayment to be determined by the due date of the first payment and date of settlement, mortgage insurance when applicable (for loans with less than 20 percent down), and hazard insurance for one year. The reserves with the lender are hazard insurance reserves, mortgage insurance reserves, county taxes, and city property taxes and flood insurance. If you escrow your taxes and insurance, you will look at paying an additional fee to set up this account with the lender, plus the reserves it will take to fund it. Then there are the title charges: title search fees, notary fees, attorney's fees, title insurance, courier fees, etc. Last are the government recording and transfer fees, which cover city and county stamps, survey, and pest inspection fees. These costs may only be estimated in advance by the lender for you.

The actual closing costs could change if you alter the closing date. For example, you may be selling your home and would like to accommodate your buyer's move-in date. Your move-out date could also move your closing date forward. Anytime you change your closing date, it will affect the APR slightly because you will be paying the interest on your loan for that period. To bring less money to closing, many people prefer to close at the end of the month, but that is not always the most practical solution.

After the appraisal, title search, and pest report, and just before closing, you will receive a "truth in lending" statement, which will contain the true cost of your loan, including the variables such as the closing date and the hazard insurance estimate. Only when the final figures are tallied is the lender able to give the true APR of the loan.

The Lowdown on Loans:

Part I, Rates

Part II, Mortgage Brokers

Part III, What's the Point of Paying Points?

Published: May 14, 1998

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