What is an APR?
APR refers to the “annual percentage rate.” It’s the cost of a mortgage on an annual basis and is likely to be higher than the stated note rate because it also takes into account points and other credit costs.
The value of knowing the APR is that it allows home buyers to compare different types of mortgages based on the loan’s annual cost. In other words, it measures the true cost of a loan. It’s also important to note that it doesn’t affect your monthly mortgage payments.
What does it mean to lock the interest rate?
Interest rates can change from day to day, and locking in your rate keeps you from having to ride the wave. A sharp rise in an interest rate can increase a mortgage payment, so lenders can allow a borrower to lock in an interest rate. The rate is locked for a specific period of time, usually 30 to 60 days, and sometimes there is a fee.
Should I pay points to lower my interest rate?
If you plan to stay in your home for at least a few years, then paying for points to lower the interest rate can help you keep your monthly loan payment where you want it. Points can also help you qualify for a bigger loan amount.
If you don’t plan on living in the home for more than a year or two, it’s probably best not to consider purchasing points. That’s because your monthly savings may not make up the cost you paid upfront.
How do lenders judge my credit?
Lenders use a credit report to get a complete picture of your finances and ensure you are a responsible borrower. They’ll look at your credit report for indications of your bill-paying history, any late payments or collections that may be on your report, the number of accounts (and type of accounts) you have, and the age of your accounts.
What is PMI (Private Mortgage Insurance)?
Lenders use Private Mortgage Insurance (PMI) to protect themselves if you can't pay your mortgage and end up defaulting. You'll typically be required to purchase PMI if your down payment is less than 20%.
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5-Step Loan Process
The loan process can be daunting, but we’re here to help. We break it down into five simple steps.