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Mortgage FAQs

Loan Programs, Rates & Fees  

  • How is pre-qualification different from pre-approval?
  • Should I choose fixed or adjustable interest rate mortgage?
  • What are points?
  • What is PMI (Private Mortgage Insurance)?
  • What is the difference between conforming and large nonconforming loans?
  • What is APR (Annual Percentage Rate)?
  • What are closing costs?

How is pre-qualification different from pre-approval?

Any reputable Mortgage Banker will "pre-qualify" you for a mortgage before you start house hunting. This process includes analyzing your income, assets, and present debt to estimate what you may be able to afford on a house purchase. Real estate brokers can also calculate the same sort of informal estimate for you.

Obtaining mortgage "pre-approval" is another thing entirely. It means that you have in hand a lender's written commitment to put together a loan for you (subject to verification of income and employment). Pre-approval makes you a strong buyer, welcomed by sellers. 

Should I choose fixed or adjustable interest rate mortgage?

Interest rates are usually expressed as an annual percentage of the amount borrowed. You can choose a mortgage with an interest rate that is fixed for the entire term of the loan or one that changes throughout. A fixed-rate loan gives you the security of knowing that your interest rate will never change during the term of the loan. An adjustable-rate mortgage (called an ARM) has an interest rate that will vary during the life of the loan, with the possibility of both increases and decreases to the interest rate and consequently to your mortgage payments. 

What are points?

In the special vocabulary of mortgage lending, "points" are a type of fee that lenders charge (the full term to describe this fee is "discount points"). Simply put, a point is a unit of measure that means 1% of the loan payment. So, if you take out a $100,000 loan, one point equals $1,000. 

Discount points represent additional money you can pay at closing to the lender to get a lower interest rate on your loan. Usually, for each point on a 30-year loan, your interest rate is reduced by about 1/8th (or .125) of a percentage point. 

What is PMI (Private Mortgage Insurance)?

If you put less than 20% down on most loans, you'll be asked to protect the lender by carrying private mortgage insurance (PMI). Carrying PMI ensures that the debt is repaid if you default on the loan. 

FHA mortgages, in return for their low-down-payment requirements, also charge for mortgage insurance premiums (MIP). 

What is the difference between conforming and large nonconforming loans?

The term "conforming," as opposed to "nonconforming," is sometimes used to explain loans that offer terms and conditions that follow the guidelines set forth by Fannie Mae and Freddie Mac. These are the two private, congressionally chartered companies that buy mortgage loans from lenders, thereby ensuring that mortgage funds are available at all times in all locations around the country. 

The most important difference between a loan that conforms to Fannie Mae/Freddie Mac guidelines and one that doesn't fit its loan limit. Fannie Mae and Freddie Mac will purchase loans only up to a certain loan limit (currently it is $417,000). 

If your loan amount will be for more than the conforming loan limit, the interest rate on your mortgage may be higher or you may have slightly different underwriting requirements, particularly in regard to your required down payment amount.  

What is APR (Annual Percentage Rate)?

Annual Percentage Rate (APR) is a measure of the cost of credit, expressed as a yearly rate, that relates the amount and timing of value received by the consumer to the amount and timing of payments made. It factors interest plus certain closing costs, any points and other finance charges over the term of a loan. The APR must be disclosed to you according to federal Truth-in-Lending laws within three business days of when you apply for a loan, or prior to or at closing for a refinance.  

What are closing costs?

On the day you actually buy your new home, in addition to your down payment, the prepaid property tax and homeowner’s insurance premiums, you'll need cash for various fees associated with the purchase. These expenses are known as closing costs and are paid by both buyers and sellers. 

Some closing costs you pay up-front when you apply for a mortgage loan. Those include money for a credit check on all applicants and an appraisal on the property. Keep in mind that even if you don't eventually receive the loan, that money is not refundable.

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