FAQs

What is APR and how is it calculated?

APR stands for the Annual Percentage Rate and is a tool used to provide a standard of comparison for loans offered by competing lenders. APR takes into account the loan's interest rate, closing costs, and other fees such as points. An APR lets you see the total cost of a loan, including fees and points over the life of the loan, not just the interest due.

Can funds be borrowed to pay for a down payment?

Yes it is possible to borrow the money for your down payment. You could borrow money from your 401 K, or even another home that you may own. If you are borrowing the money for your down payment even if it is from your friends or family you should disclose this information to your lender. There are some cases were keeping this information private has been considered a breach of the loan agreement.

What is the difference between pre qualification and pre approval?

Pre qualification is when a prospective buyer discloses, either verbally or by providing documentation of, their income, assets and credit so that a lender can determine how much a borrower will be likely to afford in loan payments. A pre approval involves an underwriter and is a more formal review of your credit and income. A prequalification will commonly only provide you with an idea of what you can afford while a pre approval will actually guarantee you a loan of a certain amount.

What is a prepayment penalty and should I have one?

A prepayment penalty allows the lender to charge the borrower a fee if they close their low within a certain period, usually the first five years of the loan. This fee is usually equal to about six months worth of interest payments on a loan. In some cases you may be able to get a lower rate if the lender includes a prepayment penalty, but it is usually better to try and avoid it.

What is Private Mortgage Insurance and will I have to pay it?

Private Mortgage Insurance (PMI) provides your lender with a way to recoup its investment if you are unable to repay your loan. PMI is usually required when the mortgage amount is higher than 80% of the home’s value. That means that if you buy a home with a down payment of less than 20%, you will probably have to pay PMI. Many people get around this by using an 80/20 program, which combines a first mortgage with home equity financing.

Should I lock my rate?

When you lock your interest rate your lender will guarantee that rate for a determine amount of time, no matter what the market does. Usually lenders will lock a rate for 30 to 60 days. If interest rates rise within that period of your lower interest rate is safe, and that is what you will pay on your loan. Talking with your mortgage lender will give you a better idea of whether you should lock your rate. They will usually keep up with current events and know whether the interest rate is planning to rise or fall.

What will my mortgage payments include?

Your mortgage payment usually consists of two parts. The principal is the amount of money you are paying towards the amount borrowed. The interest is the amount of money you are paying to borrow the money. In the beginning of your mortgage you will pay more to interest and less to principal and as your mortgage progresses you will see a shift where more of the money is going to principal and less to interest.

What is the difference between a fixed-rate mortgage and an adjustable-rate mortgage?

A fixed-rate mortgage is a loan in which the interest rate never changes and your payments remain stable throughout the life of your loan. An adjustable-rate mortgage (ARM) is a loan in which the interest rate changes at regular intervals, usually once every year, which is based on the current interest rate. For most ARMs rate adjustments begin after an initial period, usually between three months and five years, during which the rate is fixed. A fixed rate is usually best if you plan to stay in your home for the long term and are buying at a time when rates are relatively low. An ARM is usually best if you plan to move before the rate adjustments begin, or if you are buying when rates are relatively high.

What will a lender look at when I apply for a mortgage?

Lenders consider many factors in evaluating your loan application. Lenders will look at your income and debt to determine how much money you can put towards a mortgage payment each month. They will look at your credit score to see if you have been financial responsible in the past. They will also look at the property you are planning to buy to see if it is worth the amount of money you are planning to pay for it.

What if I have bad credit?

Your credit history is only one factor that a lender will look at. While someone with good credit will have more options available to them it doesn’t mean someone with bad credit cannot qualify for a loan. In fact, there are several mortgage programs specifically designed for people with bad credit.