FAQ's | Understanding Mortgage
Refinancing can be beneficial when mortgage rates are about 2% lower than your current rate, though even a 1% reduction can lower your payments. For example, on a $100,000 loan, reducing the rate from 8.5% to 7.5% could save you $70 monthly. Your lender can help you assess whether refinancing is right for your situation.
Points are upfront fees paid to the lender, with one point equal to 1% of the loan amount. Paying points can lower your interest rate, making them a good option if you plan to stay in the home long-term.
The Annual Percentage Rate (APR) reflects the total yearly cost of your mortgage, including interest, points, and fees. While helpful for comparing loans, the APR doesn’t affect your monthly payments directly. Request a good-faith estimate from lenders to accurately compare costs.
A rate lock secures your interest rate for a set period, typically 30-60 days. This protects you if rates rise before closing, though there may be a fee.
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Property Information: Signed sales contract, listing sheet, and legal description.
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Income Verification: Pay stubs, W-2 forms, tax returns, and, if self-employed, a profit and loss statement.
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Assets: Recent bank statements, proof of down payment, and any gift letters if applicable.
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Debts: Account details for existing debts and any obligations like alimony or child support
Credit scores evaluate factors such as payment history, debt level, and credit length. A higher score (350-850) reflects better creditworthiness. Review your credit report for accuracy through Equifax, Experian, or TransUnion.
Improve your score by paying bills on time, reducing outstanding debt, and avoiding new credit accounts. These actions may take time to show significant improvements.
An appraisal estimates the property’s market value to ensure the loan amount doesn’t exceed this value. Appraisals are performed by licensed professionals and consider location, amenities, and physical condition.
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Private Mortgage Insurance (PMI) is required when your down payment is less than 20%. It protects the lender if you default. You can avoid PMI by putting down at least 20%.
This structure involves an 80% first mortgage, a 10% second mortgage, and a 10% down payment. It helps avoid PMI, though fees may be higher with a smaller down payment.
At closing, property ownership transfers from the seller to you. You’ll review and sign documents, pay any remaining fees, and conduct a final inspection of the property. A title or escrow company often handles the disbursement of funds and the transfer of keys.