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Module 3
Preparing for Home Ownership
Types of Home Loans
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Comparing Loans

Key Factors to ConsiderWhen examining the overall cost of closing a loan, there is much more to consider than just the interest rate. You should also compare any discount points that are charged (often, you may have the ability to choose the number of discount points to pay, which may lower your interest rate but cost more out of pocket at closing) and all lender fees and third party fees (escrow, appraisal, title, etc.). Other key factors to consider are the term of the loan and how long you plan to stay in the home. The lender is required by RESPA (Real Estate Settlement Procedures Act) to give you a Good Faith Estimate (GFE) within three days of your loan application. The GFE is an estimate of the costs related to your loan. Remember that the GFE is an estimate. The actual costs on the HUD-1 Settlement Statement that you receive at closing may be more or less.

How to Find Out How Much Interest You'll Pay
You will also receive a TILA (Truth-in-Lending Act) disclosure statement that provides information about certain key terms of your loan. This disclosure shows you how much interest you will pay over the life of the loan (finance charge) and includes the annual percentage rate (APR).

Compare the APR
A good way to compare loans is by checking the APR. This number includes the interest charged plus points and most lender fees, and certain other costs you are required to pay to get the loan. A low interest rate loan product may sound great, but be sure to see if there are multiple points and lender fees that make the total APR much higher. Remember, the buyer always pays the costs, either upfront or in the form of a higher rate.

Note: APRs on ARM and Hybrid ARM loans are often very close to the interest rate, but that is because the APR does not assume any interest rate adjustments after the initial period. Such adjustments in rate and monthly payment are of course possible, even probable.

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