Frequently Asked
Questions
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What is APR?
The annual percentage rate (APR) is a measure of the cost of a mortgage at a yearly rate. The APR is higher than the interest rate on your loan because it reflects the real cost of getting the loan - including points, mortgage broker fees, and other charges which you paid. The use of APR prevents lenders from advertising a low rate while hiding fees - then borrowers can compare loans in a straightforward way.
What does it mean to "lock" the interest rate?
From the day you apply for a loan to the day you close the transaction, interest rates may change. A rise in interest rates will increase your monthly payment. Lenders can allow buyers to "lock in" an interest rate, which guarantees that rate for a certain time period (e.g. 30 or 60 days).
What are points?
Discount points are fees used to lower the interest rate on a mortgage loan. A point is a percentage of the loan amount, where 1 point = 1% of the loan. For example, one point on a $100,000 loan is $1,000. Payment for points is due to your lender at closing.
Should I pay points to lower my interest rate?
Buying discount points makes the most sense for people who plan to stay in their property for at least a few years. Although paying points can lower your monthly loan payment, you need to stay long enough to recoup the money it took to buy the points. If you sell too soon, your monthly savings may not be enough to recoup what you paid up-front for the points.
How is my credit judged by lenders?
When you apply for a loan, lenders assess your credit risk statistically, based on a number of factors such as credit/payment history, financial profile, and income. The resulting credit score helps lenders to predict who is most likely to repay a debt and make payments on time.
The most widely-used credit scores are FICO scores. Your score will fall between 350 (high risk) and 850 (low risk). Because it's an important part of your loan application, you should check your credit report before you submit an application.
You are entitled to receive one free credit report every 12 months. Learn more at freecreditreport.com.
What can I do to improve my credit score?
Credit scoring models are complex and vary amongst creditors. But in general, you will improve your credit score if you:
- Pay bills on time: Late payments or bankruptcies will be reflected in your report
- Don't max out your available credit: Many scoring models compare the amount of debt you carry to the amount of credit you have available.
- Don't apply for new credit accounts close to the time you apply for the loan. If you have applied for too many new lines of credit recently, that may lower your score.
To improve your credit score, aim to pay your bills on time and not take on significant new debt. It will take some time to improve your score significantly.
What is an appraisal?
An appraisal is a written estimate of the property's fair market value, usually completed by a state-licensed home appraiser. Market value is based on many factors - including the property's condition, age, size, taxes, neighborhood, predicted future marketability and the selling prices of similar homes in the area. Lenders require appraisals to confirm that the mortgage loan amount is not more than the actual value of the property.
What happens at closing?
At the closing, also known as the "settlement", ownership of the property is officially transferred from the seller to the buyer. Most of the paperwork will have been prepared by attorneys and real estate professionals. There will be many important documents that you will need to sign, which could have lifelong financial implications - you should make sure you understand the documents before signing. After closing, you will receive the keys to your new property - congratulations!