Mortgage FAQ's
Mortgage Glossary
Q: What is APR?
A: The Annual Percentage Rate
is the cost
of credit expressed as a yearly
rate. The
APR combines interest rate, points,
and related
fees.
Q: What is a Finance Charge?
A: The Finance Charge is the
cost of credit
expressed as a dollar amount.
It includes
any charge payable directly,
or indirectly,
by the applicant, and imposed
directly, or
indirectly, by the lender, as
a condition
of receiving credit.
Q: What are Discount Points?
A: Discount Points are equal
to a percent
of the loan amount. 1.25 points
are equal
to 1.25% of the loan amount.
For example:
on a $100,000 loan amount that
equals $1,250.
Typically, if you pay points
it will lower
the Interest Rate.
Q: What is a Loan Origination
Fee?
A: Origination fees are expressed
as points
or as a percentage. A one point
or one-percent
origination fee is equal to 1%
of the loan
amount.
Q: What are Escrows?
A: An Escrow Account is used
to protect monthly
payments for taxes and insurance
obligations.
Q: What is a Credit Score?
A: Credit scores were created
for general
use in making lending decisions
and are based
on credit data only. FICO* scores
are one
type of generic credit score.
FICO scores
range from approximately 400
to 900. The
lower the score the greater the
risk of default
on a loan. A credit score below
620 gives
a lender a strong indication
that a borrower's
credit reputation is not acceptable.
Under the Fair Credit Reporting
Act all consumers
can obtain a copy of their credit
reports
by calling:
• EquiFax: 800-685-1111
• Trans Union: 800-916-8800
• Experian: 800-682-7654
Learn more about Credit Scores.
*FICO: Fair ISAC Credit Company
developer
of FICO scores
Q: What is Private Mortgage Insurance
(PMI)?
A: Private Mortgage Insurance
is a type of
insurance provided by a private
mortgage
insurance company, to protect
the lender
in the event of loan default.
This type of
insurance is required when a
borrower has
less than 20% equity in a home.
Private mortgage
insurance is paid monthly.
Q: What is ARM (Adjustable Rate
Mortgage)?
A: A mortgage that permits the
lender to
adjust its interest rate periodically
based
on the movement of a specific
index. Example:
1-3-5 year Treasury Bill. There
are generally
limitations, such as 2% on the
amount the
mortgage interest rate can go
up or down.
Q: What is PITI?
A: PITI is an acronym for the
items included
in a monthly payment: principal,
interest,
taxes, and insurance.
Q: How do I determine how much
I can afford?
A: Generally, you should qualify
for monthly
housing expense (PITI, or the
monthly payment
for mortgage principal, interest,
property
taxes and property insurance)
equal to 33%
of your gross monthly income.
The best way
to know with confidence is by
getting pre-approved.
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| Fixed Rate Mortgages |
With a fixed rate mortgage, you know exactly
what your principal and
interest payment
will be every month. It
won't change because
your interest rate won't
change.
Learn More
|
| Adjustable Rate |
Adjustable Rate Mortgages (ARMs) offer a
lower interest rate to
start, so your monthly
payments are generally
lower. But, the interest
rate is adjusted at times,
based on an "index". Learn More
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