Question 1

When should I refinance?

Accepted Answer

Refinancing usually makes sense when the money you'll save is more than the cost of the new loan over the time you plan to stay. Divide your closing costs by your monthly savings to find your break-even point. If you'll stay well past that point, refinancing is worth a look. People also refinance to remove mortgage insurance, switch from an adjustable to a fixed rate, shorten their term or take cash out.

Question 2

What are points?

Accepted Answer

Points, also called discount points, are an upfront fee you can pay at closing to lower your interest rate. One point equals 1% of your loan amount. For example, one point on a $300,000 loan costs $3,000.

Question 3

Should I pay points to lower my interest rate?

Accepted Answer

It depends on how long you'll keep the loan. Divide the cost of the points by how much they lower your monthly payment. If you'll keep the loan longer than that number of months, paying points can save money. If you might sell or refinance soon, it's usually better to skip them.

Question 4

What is an APR?

Accepted Answer

The annual percentage rate (APR) shows the yearly cost of your loan, including the interest rate plus certain fees like points and lender charges. Because it includes those costs, the APR is usually higher than the interest rate. It's a helpful way to compare loan offers side by side.

Question 5

What does it mean to lock the interest rate?

Accepted Answer

A rate lock is a lender's promise to hold a specific rate and points for a set period, often 30 to 60 days, while your loan is processed. If rates go up during that time, your rate stays the same. Make sure the lock lasts long enough for you to close.

Question 6

What documents do I need to prepare for my loan application?

Accepted Answer

Most borrowers need a photo ID, recent pay stubs, two years of W-2s, two months of bank statements, retirement or investment statements, and details on any debts. Self-employed borrowers usually need two years of tax returns. See our Application Checklist for the full list.

Question 7

How is my credit judged by lenders?

Accepted Answer

Lenders look at your credit score and your credit report. They want to see a history of on-time payments, reasonable credit card balances, how long you've had credit and whether you've opened many new accounts lately. Past events like bankruptcy or foreclosure are also considered, along with how you've rebuilt since.

Question 8

What can I do to improve my credit score?

Accepted Answer

Pay every bill on time, keep credit card balances well below their limits, avoid opening new accounts before you apply, keep older accounts open and dispute any errors on your credit report. Talk with us before paying off collections or closing accounts, because timing matters.

Question 9

What is an appraisal?

Accepted Answer

An appraisal is an independent, professional estimate of a home's market value. A licensed appraiser inspects the home and compares it with similar homes that sold recently nearby. Lenders use it to make sure the home is worth the amount being borrowed.

Question 10

What is PMI (Private Mortgage Insurance)?

Accepted Answer

PMI is insurance that protects the lender on a conventional loan when you put less than 20% down. It's usually added to your monthly payment. You can ask to cancel it once you reach 20% equity based on the original value, and it ends automatically at 22% equity for most loans.

Question 11

What is 80-10-10 financing?

Accepted Answer

80-10-10 financing is a way to buy with 10% down while avoiding PMI. You take a first mortgage for 80% of the price, a second mortgage or home equity line for 10%, and make a 10% down payment. It can make sense in some situations, but the second loan often has a higher rate, so compare it to a single loan with PMI.

Question 12

What happens at closing?

Accepted Answer

At closing you'll review and sign your final loan documents and the deed, pay your down payment and closing costs, and receive the keys to your home. You'll get your Closing Disclosure at least three business days before, so you can review the final numbers ahead of time.

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