FAQs

Refinancing may be beneficial when it can help you save money or align better with your financial objectives. Consider refinancing if interest rates have dropped, your credit score has improved, you want to change your loan term, switch between fixed and adjustable rates, or access home equity through a cash-out refinance. However, it's crucial to evaluate the potential savings against the associated refinancing costs to ensure it's a financially sound decision.

Points are fees paid to a lender to secure mortgage financing under specific terms. One point equals 1% of the loan amount. For example, on a $100,000 loan, one point would cost $1,000. Discount points are upfront fees used to lower the interest rate on a mortgage loan. Lenders may also express costs in basis points, where 100 basis points equal 1 point or 1% of the loan amount.

Paying points to lower your interest rate is optional. This process, known as buying down the rate, involves paying an upfront fee for a reduced interest rate over the loan's duration. It can result in long-term savings, but it's most beneficial if you plan to keep the loan long enough to recoup the initial cost. If you prefer lower upfront expenses or don't plan to stay in the home for an extended period, opting out of points may be more advantageous.

Annual percentage rate (APR) represents the total yearly cost of borrowing, expressed as a percentage. It encompasses not only the interest rate but also other charges such as lender fees or points. APR provides a more comprehensive view of the actual cost of a loan over its lifetime, facilitating easier comparison between offers from different lenders.

Locking the interest rate is a process where a lender guarantees a specific interest rate for a set period, typically 30-60 days, during the mortgage application process. This protects the borrower from potential rate increases that could occur between application and closing, which could otherwise lead to unexpected increases in mortgage payments. Some lenders may charge a fee for this service.

For a mortgage application, you'll typically need to provide recent pay stubs, W-2 forms for the past two years, employment history, and tax returns. If self-employed, you'll need to submit additional documentation such as profit and loss statements. For down payment verification, you'll need to show bank statements, investment accounts, or gift letters. Specific requirements may vary based on your individual circumstances, so it's advisable to consult with your lender for a comprehensive list of required documents.

Lenders evaluate your credit using a scoring system that considers various factors from your credit report and application. These factors include your payment history, the number and types of accounts you have, any late payments or collections, outstanding debt, and the age of your accounts. This information is analyzed statistically and compared to consumers with similar profiles. Points are awarded for factors that indicate a higher likelihood of debt repayment. You're entitled to one free credit report annually from each of the three major credit bureaus: Equifax, Experian, and TransUnion.

To enhance your credit score, prioritize timely payment of all bills, as payment history significantly impacts your score. Aim to keep credit card balances below 30% of your available credit limit. Avoid opening multiple new credit accounts in a short timeframe, as this can temporarily lower your score. Maintaining long-standing credit accounts is beneficial, as credit history length is a positive factor. Regularly review your credit reports for inaccuracies and dispute any errors you find. Remember, improving credit takes time and consistent responsible financial behavior.

An appraisal is a professional assessment of a property's market value, typically conducted by a licensed appraiser. Lenders require appraisals during the mortgage process to ensure the property's value supports the loan amount. The appraiser evaluates the property based on several factors, including its condition, location, size, and recent sales of comparable properties in the area.

Closing, also known as funding, is the final step in the property transfer process. During this event, ownership is officially transferred from the seller to the buyer. The closing meeting may involve various parties including the buyer, seller, real estate agents, attorneys, lender representatives, and title or escrow firm staff. Prior to closing, a final property inspection or 'walk-through' is typically conducted. At the closing, all necessary paperwork is signed, and funds are transferred. The process duration can vary depending on the complexity of the transaction and any contingencies involved.