Know The Numbers

Understanding the real cost of borrowing, whether residential or commercial, can protect you from surprises and keep you in control. It puts you in a stronger position to plan ahead, compare loan options, and protect your bottom line. Here’s a breakdown of key expenses and terminology to expect when applying for a mortgage.

Credit Report Residential:

Lenders will check your credit history and score using a third-party agency with your permission. This allows them to assess your risk profile based on current debt, payment history, and credit utilization.

Commercial:

Lenders may evaluate both your personal and business credit, especially if the loan is guaranteed personally. For entities (LLCs, LPs, Corps), business credit scores, trade lines, and financial statements also come into play.

Loan Application & Processing Fees

These cover the lender’s administrative work to review your file, verify documents, and initiate underwriting.

Residential:

Typically ranges from $300 to $600.

Some lenders may credit this fee back at closing ask upfront.

Commercial: Fees can be higher, especially for complex underwriting. Expect potential application, due diligence, or lender legal fees, particularly on deals over $1M. These fees are often non-refundable, and credits at closing are less common always confirm terms with your lender.

What Is APR? Residential:

The APR (Annual Percentage Rate) combines your interest rate with additional lender fees, giving you the total cost of borrowing.

For example, a loan with a 5.875% interest rate may carry a 6.0% APR once fees are included.

Commercial:

APR is less commonly used in commercial lending. Instead, borrowers evaluate interest-only periods, loan terms, amortization schedules, prepayment penalties, and total debt service to understand true borrowing costs.

Indexes (for Adjustable Loans)

If you’re considering an ARM (Adjustable-Rate Mortgage) for residential or a variable-rate loan for commercial real estate, your interest rate may change over time based on financial index.

Common indexes include:

• The Federal Funds Rate
• 1-Year Treasury Yield
• SOFR (Secured Overnight Financing Rate)

Lenders typically add a margin to the index to determine your new rate. It’s essential to understand how often the rate adjusts, what triggers the changes, and how high your rate can potentially rise.

Discount Points

Also known as “buying down the rate,” points are upfront fees you can pay to lower your interest rate.

Residential:

Buy down your interest rate by paying “points” upfront.

1 point = 1% of the loan amount

These are usually tax-deductible check with your CPA to confirm your benefit.

Commercial:

Points may be negotiated differently or wrapped into lender origination fees. Confirm whether they apply and how they affect your yield.