Frequently Asked Questions
What is a discount
A discount point is paid to the lender to permanently buy down or lower
an interest rate. It is usually a percentage of the loan amount.
How can I compare rates
and fees when shopping for a mortgage?
When comparison shopping, look at the points, the fees and the Annual Percentage Rate (APR).
The APR includes lender fees that are charged on your loan. Although one lender may have a slightly lower rate,
they may charge more fees, and therefore have the same APR as a lender with the slightly higher
What is the difference between APR and interest
The APR (Annual Percentage Rate) reflects the cost of your mortgage loan as a percentage of
the net amount borrowed. It incorporates the cost to obtain the loan, such as lender fees, discount fees and loan
origination fee. The interest rate is the actual note rate.
What is the difference between 'locking' and
If you choose to 'lock-in' on a particular rate, you will receive protection for a specified
period of time from financial market fluctuations in interest rates. If you choose to 'float' your rate, it will
fluctuate with the market and will be subject to both upward and downward movements in the market.
What is the difference between a prequalification and a pre-approval
A prequalification is typically the result of information shared between a mortgage lender
and a potential borrower. It usually does not involve a credit report or verification of any information obtained.
The end product for a prequalification analysis will be an estimate of the maximum mortgage amount for which you
may qualify. A mortgage loan pre-approval application typically results in a written loan decision following a
complete mortgage application, with a specific loan amount. Many lenders will require an upfront fee to cover the
expenses such as the credit report and the credit analysis. You can typically apply for a pre-approved mortgage
prior to signing a purchase agreement for a home. Many lenders will also allow you to lock in an interest rate at
the time you apply for a pre-approved mortgage. A pre-approval can also add to your negotiating strength when you
are ready to make an offer on a home.
What documents will typically be requested when I make
application for a first mortgage loan?
For most borrowers, you will need to provide pay stubs that cover a 30 day period, complete
copies of your most recent bank statements, and the purchase contract on the home you are buying. If you are
self-employed, you may also be required to provide your personal tax returns. Documentation requests vary by loan
What is title
Title insurance provides the lender and the buyer (if you purchase owner's coverage) with
coverage for losses resulting from specific title defects listed in the policy. In cases where land and property
have changed hands over time, there is always the possibility an error has occurred. If an error has occurred, it
may be that someone else may be entitled to or have an interest in the property, improvements may be encroaching on
property lines or that other similar problems may exist. In these scenarios, if you do not have title insurance you
could lose your investment in your home. Lenders require 'lender's coverage' to protect their investment and it
only protects the lender. Owner's coverage is optional and provides separate coverage for the
What is Loan-to-Value
LTV is the ratio between the loan amount and the appraised value or the sales price,
whichever is lower. A loan amount of $80,000 with a purchase price of $100,000 would be an 80% LTV.
What is PMI and why is it
Private mortgage insurance (PMI) is insurance written by a private company that protects the
lender from losses in the event the borrower defaults on the mortgage. Borrowers are required to pay the premium
for private mortgage insurance. Private mortgage insurance limits a lender's exposure to financial loss resulting
from loan default. If you make a down payment of less than 20%, even if you have a good credit profile, lenders
generally require private mortgage insurance.
How long will I be required to have PMI on my
In most cases, the borrower can request cancellation of PMI at 80% loan to value (LTV) based
on amortization or actual payments. The borrower must have a good payment history, provide evidence the property
value has not decreased, and certify there are no subordinate liens on the property. Lenders are required to
terminate borrower paid PMI at 78% LTV based on the amortization schedule if the loan is current. If none of the
above is done, PMI will terminate automatically at the midpoint of the loan term. Typically, PMI is required on
your loan for a minimum of 24 consecutive payments absent any law to the contrary. After that time, if you have 20%
or more equity in your property and meet certain other conditions, you may request to have it removed. Typically,
there is no guarantee that your PMI will be removed, and most loan investors will require a new appraisal at your
expense prior to removing PMI.
What are escrow accounts and how much do I need in my
Escrows are payments made by a mortgagor to a mortgagee for the purpose of paying the
mortgagor’s taxes, insurance, and other payments associated with home ownership. The mortgagee is responsible for
the timely disbursement of escrow funds to pay the mortgagor’s bills as they come due. Usually, a mortgage company
collects funds for placement into the mortgagor’s escrow account with the mortgagor’s periodic payment for
principal and interest. An escrow account has sufficient funds if there is enough to pay all bills when they come
due. It is common practice for mortgage companies to hold an escrow cushion for a mortgagor. The cushion is kept by
the mortgage company to assure that if the cost of any escrowed item were to increase in the future, there would be
sufficient funds to pay all bills as they come due.