Common Questions

Q: What are points?

A: Points are fees added on to a loan and are paid when the loan closes. One point equals one percent of the loan amount. There is an inverse relationship between the interest rate and the number of points paid. In other words, you can lower your monthly mortgage payments by paying more money up front through points.

Q: What does it mean to lock in a rate?

A: When you lock in a rate, you are asking the lender to guarantee the current interest rate for a certain period of time. By locking the rate you are guaranteed that rate for your loan regardless of whether or not the rates go up the next day or not.

Q: What is an ARM?

A: ARM stands for Adjustable Rate Mortgage. With this type of loan, your interest rate is not fixed so it will change periodically. An ARM can be a good option when you are planning on selling your home in a few years as it may provide the lowest monthly payments. If you are looking to keep your home for a long period of time, an ARM may not be the best option as your interest rate may increase.

Q: What is a mortgage?

A: A mortgage is a legal document you sign pledging your property as security for a loan that the lender makes to you. A mortgage is executed along with the note, which is your obligation to repay the loan on a timely basis. At closing, the borrower signs both the note and the mortgage deed of trust. Without a mortgage the lender would not have the ability to foreclose against the property in the event of default.

Q: What is a FICO score?

A: A FICO score is a credit score developed to determine a borrower's ability to repay a loan. The FICO score has become widely accepted by the lending industry as a quick and reliable way to evaluate a person's credit history. Although important, most lenders do not base their final decision on the FICO score. A live underwriter review of a loan application and credit report will often be used to evaluate a borrower with a low FICO score before a final lending decision is made.

Q: What are closing costs?

A: Closing costs are the costs charged by the lender for funding and completing a loan. These costs are usually charged when the loan is closed and include points, origination fees, title insurance fees, recording fees and bank attorney fees. Closing costs are generally 5-7% of the loan amount.

Q: What is a Loan-to-Value ratio?

A: The Loan-to-Value ratio, or LTV, is simply the loan amount divided by the value of the property. The LTV is important because it determines your equity in the property.

Q: What is PMI?

A: PMI stands for Private Mortgage Insurance and is used to protect the lender in the event that house payments are not made. Generally, the borrower is required to pay a fee for mortgage insurance when the downpayment is less than 20%.

Q: What is an appraisal?

A: An appraisal is a report created by a qualified appraiser that is an estimate of the value of the property being financed.

Q: What is title insurance?

A: Title insurance is an insurance policy that is used to insure the homebuyer against loss due to problems with the title on the property being mortgaged. These problems would typically involve ownership claims against the property that were not identified during the title search. The title insurance fee is paid with a one-time premium when the loan closes.

Q: What is a loan origination fee?

A: This is the fee that covers the lender's costs for processing your loan. It is usually applied as a percentage of the loan amount.

Q: What are Fannie Mae, Freddie Mac, and Ginnie Mae?

A: Fannie Mae is another name for The Federal National Mortgage Association (FNMA), Freddie Mac refers to The Federal National Mortgage Loan Corporation (FHLMC), and Ginnie Mae refers to the Government National Mortgage Association (GNMA). Fannie Mae and Freddie Mac serve as an intermediary between Wall Street capital markets and home lending across the United States. Ginnie Mae acts in a similar fashion for government FHA and VA home loans.

Q: What are escrows?

A: Escrows are funds collected with the borrower's monthly payment and are used to pay for fees like property taxes and hazard insurance as they come up. An escrow account is started for the borrower at closing.