FREQUENTLY ASKED QUESTIONS
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 costs that need to be 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 upfront. Lenders may refer to costs in terms of basic points in hundredths of a percent, 100 basis points = 1 point, or 1% of the loan amount.
WHAT IS AN APR?
The annual percentage rate (APR) reflects the cost of a mortgage as a yearly rate. The APR allows homebuyers to compare different types of mortgages while preventing lenders from advertising a low rate and hiding fees. The APR does not affect your monthly payments which are a function of the interest rate and the length of the loan.
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Because APR calculations are affected by the various different fees charged by lenders, a loan with a lower APR is not necessarily a better rate.
WHAT IS A CREDIT REPORT?
Your credit payment history is recorded in a file or report. These files or reports are maintained and sold by "consumer reporting agencies" (CRAs). One type of CRA is commonly known as a credit bureau. You have a credit record on file at a credit bureau if you have ever applied for a credit or charge account, a personal loan, insurance, or a job. Your credit record contains information about your income, debts, and credit payment history. It also indicates whether you have been sued, arrested, or have filed for bankruptcy.
WHAT IS PRIVATE MORTGAGE INSURANCE (PMI?)
When obtaining a conventional mortgage and your down payment is less than 20% of the purchase price of the home, lenders usually require you to get Private Mortgage Insurance (PMI) to protect them in case you default on your mortgage. Sometimes you may need to pay up to 1-year's worth of PMI premiums at closing, which can cost several hundred dollars. The best way to avoid this extra expense is to make a 20% down payment or ask about other loan program options.
WHAT IS AN APPRAISAL?
An appraisal is an assessment that is generally required (depending on the loan program) by a lender before loan approval to ensure that the proposed mortgage loan amount is not more than the value of the property. The appraisal is performed by a state-licensed professional, also known as an appraiser, who is trained to render expert opinions concerning property values based on its location, amenities, and physical conditions.
WHAT ARE CLOSING COSTS?
Closing costs are payments (typically to third parties) that are required to finalize a home loan and transfer ownership of the property from the seller(s) to the buyer(s). Note: closing costs are separate from the down payment.