Frequently Asked Questions
Answers to common questions about mortgages, refinancing, and the home loan process.
When should I refinance?
It's generally a good time to refinance when mortgage rates are 2% lower than the current rate on your loan. It may be a viable option even if the interest rate difference is only 1% or less. Any reduction can trim your monthly mortgage payments. Your trusted lender can help you calculate your options.
What are points?
A point is a percentage of the loan amount — 1 point = 1% of the loan. So one point on a $100,000 loan is $1,000. Points are fees paid to a lender to get mortgage financing under specified terms. Discount points are fees used to lower the interest rate on a mortgage loan by paying some of this interest up-front.
Should I pay points to lower my interest rate?
Yes, if you plan to stay in the property for at least a few years. Paying discount points can lower your monthly payment and increase the loan amount you can afford. However, if you plan to stay only a year or two, the monthly savings may not recoup the cost of the points paid up-front.
What is an APR?
The Annual Percentage Rate (APR) reflects the cost of a mortgage as a yearly rate. It is likely higher than the stated note rate because it takes into account points and other credit costs. The APR allows homebuyers to compare different types of mortgages based on the annual cost for each loan. Note: APR does not affect your monthly payments — those are strictly a function of the interest rate and loan length.
What does it mean to lock the interest rate?
Mortgage rates can change from application to closing. A rate lock guarantees your interest rate for a specified time period, often 30-60 days, sometimes for a fee. This protects you if rates rise during the application process.
What documents do I need to prepare for my loan application?
Below are common documents required. Every situation is unique, so additional documentation may be requested.
Your Property
- Copy of signed sales contract including all riders
- Verification of deposit placed on the home
- Names and contacts of all realtors, builders, insurance agents, attorneys
Your Income
- Pay-stubs for the most recent 30-day period and year-to-date
- W-2 forms for the past two years
- Employer names and addresses for the last two years
- If self-employed: full tax returns for two years plus year-to-date P&L statement
Source of Funds and Down Payment
- Bank statements for the last 3 months
- Stock/bond statements or certificates
- Gift affidavit and proof of receipt (if applicable)
How is my credit judged by lenders?
Credit scoring is a system creditors use to determine whether to give you credit. Your score is based on bill-paying history, number and type of accounts, late payments, outstanding debt, and age of accounts. The most widely used scores are FICO scores, ranging from 350 (high risk) to 850 (low risk). You can get one free credit report annually at www.annualcreditreport.com.
What can I do to improve my credit score?
Focus on: (1) Paying your bills on time, (2) Paying down outstanding balances, (3) Not taking on new debt. Credit scoring models consider payment history, outstanding debt, length of credit history, new credit inquiries, and types of credit accounts. Improving your score takes time and consistent good habits.
What is an appraisal?
An appraisal is an estimate of a property's fair market value. It is generally required by a lender before loan approval to ensure the mortgage amount is not more than the property's value. The appraisal is performed by a state-licensed professional who evaluates the property's location, amenities, and physical condition.
What is PMI (Private Mortgage Insurance)?
On a conventional mortgage with a down payment less than 20%, lenders typically require Private Mortgage Insurance (PMI) to protect them if you default. You may need to pay up to 1 year's worth of PMI premiums at closing. The best way to avoid PMI is to make a 20% down payment or explore other loan program options.
What happens at closing?
At closing, ownership of the property is officially transferred from the seller to you. This involves you, the seller, real estate agents, attorneys, and title/escrow representatives. Most paperwork is handled by professionals. Prior to closing, do a final inspection (walk-through) to verify requested repairs were made and agreed items are present. In most states, a title or escrow firm completes the settlement.