Q: What is the difference between fixed rate and adjustable rate loans?

A: A fixed rate loan is a loan whre the principle and interest payment remain the sam throughout the life of the loan. An adjustable rate loan (ARM) is a loan where the payments are fixed for a period of time and then bigin to adjust with the interest rate change.

Q: What is Mortgage Insurance (PMI)?

A: Mortgage Insurance is required on all loans with a Loan to Value (LTV) that is greater than 80%. PMI protects the lender against loss by default in early stages of loan repayment. The PMI payment is based upon the exact LTV and the credit score. The lower the LTV is to the 80% threshold and the higher the credit score the lower your payment will be.

Q: What exactly is your debt to income ratio (DTI)?

A: Your debt to income ratio (DTI) is a way of determining how much money is available for your monthly mortgage payment after all other debt obligations have been met. Each type of loan requires DTI guidelines. Such as 28/36 on a conventional loan. Usually FHA/VA offer slightly higher DTI guidelines of 29/41, although there are circumstances which may allow you to go above those guidelines. The first number in the ratio is the maximum percentage of your gross monthly income to be applied to housing. The second number is the maximum that can be applied to housing and recurring debt.

Q: What are POINTS?

A: Points are generally in the form of Origination Points, Discount Points, Mortgage Broker Fee and Yield Spread. All these terms really only mean one thing...the amount the lender is compensated for their services. Each point is one percent of the loan amount. These fees are disclosed on the Good Faith Estimate, which should be thoroughly explained at the time of application.

Q: What are Discount Points?

A: Discount Points allow you to lower your loan's interest rate. Each point equals one percent of the loan amount. If your plan is to stay in the home for a long period of time then it might be feasibly to ask your loan officer if paying discount points will be worth your while. The overall goal in doing this is to lower your interest rate which will also lower your monthly payment as well.

Q: What is the difference between the Interest Rate and the Annual Percentage Rate (APR)?

A: The interest rate is the rate that makes up your payment, along with the loan amount and term of the loan. The Annual Percentage Rate (APR) is a tool for borrowers to compare different loans. The APR represents the "actual" cost of the a loan, expressed in the form of a yearly interest rate. The APR includes some of the various fees of a mortgage. APR's do vary, but the fees that are included should reflect as so on the Good Faith Estimate. Not all lenders include the same costs. This is a tool for you as borrower to shop for different mortgage companies and really compare costs.