Most buyers are shopping for the best mortgage loan rate. However, many don’t think to add the “closing costs” expense into the total cost of the loan.

When applying for a mortgage, you may not pay the advertised rate. The best rates are for those homebuyers with the best credit scores. However, lenders are competitive, so you’d be wise to compare the rates and closing costs of several lenders.  You’ll receive a loan estimate that you can compare side-by-side.

Compare the Interest Rate
There are many factors that affect interest rates, including the economy, inflation, and the Federal Reserve’s overnight borrowing rates for banks. You can’t control these things, but you can influence the factors influence your credit score.

If you have a credit score of 740 or higher, the risk of default is low enough that you will likely receive the lender’s best rate. A credit score of 620 or lower will give you fewer loan options and the highest rates. Lenders also look for a loan-to-value – code for how much money you’ll put down as a down payment. The more you put down the better the ratio.

What you’ll actually pay
The true rate you’ll pay is the annual percentage rate (APR). The APR is your mortgage interest rate plus closing costs that have been rolled into the loan.  These include loan origination fees, property appraisal, flood certification, credit reports, and other charges associated with getting a loan. You’ll be able to find these numbers under the “comparisons” section of your loan estimates.

There is no fixed amount for closing fees and they will vary from one lender to another. Basically, a low interest rate with higher closing costs may turn out to be a more expensive monthly payments than one with a higher interest rate and lower closing costs.

Make sure that you’re comparing loans that the APR is consistent. For example, if the average 30-year fixed mortgage rate is 3.030%, then the APR is 3.250%.