Traditional Mortgage FAQs
What are points? One point is one percent of the loan amount. In effect, you pay points upfront to get a lower interest rate for the life of the loan. For example, a $100,000 loan that requires one point to get a certain rate, you pay $1000 to acquire that rate.
What’s the difference between my interest rate and APR? The interest rate is the cost of borrowing money, and is derived solely from the principal amount of the loan. The annual percentage rate (APR) is an interest rate that reflects not just the principal, but all costs associated with the loan, including points, underwriting fees, mortgage insurance, etc. The APR rolls into one rate all of the costs associated with acquiring the loan and closing the transaction.
Finding the best loan, then, isn’t simply a matter of looking at the interest rate or the APR. You need to look at all the fees associated with the loan, then look at the interest rate, and compare. At McGowin King, we explain clearly which fees are being paid to us, which are adjustable, and which are paid to a third party.
What is PMI? PMI is private mortgage insurance, and most lenders require it if you put down less than 20% of the house sales price. PMI protects the lender in case you default on your loan. There are several options for PMI, including paying a portion of it upfront. When your “loan-to-value” ratio dips below 80% (i.e. when the amount you owe is less than 80% of the home’s value), you can typically drop your PMI policy..
What documents do I need to get a loan? Exact documentation varies depending on the loan you get, but you can typically expect to be asked for the following:
- Signed sales contract (if a purchase)
- Copies of pay-stubs for the most recent 30-day period
- W-2 forms for the past two years
- Names and addresses of all employers for the last two years
- Tax returns for the last two years
- Copies of bank statements for the last 3 months
- For any stocks and bonds, copies of your statement from your broker or copies of certificates
This is a basic list. Several factors may mean that we’ll need more documentation: If you receive alimony or child support and wish to claim it as income; if you are self-employed; if you receive VA or Social Security benefits, etc.
Is working with a broker different than working with a bank? Yes. We work with a variety of lenders to find you the best rate and loan option. If you go to a “big bank,” they will only offer their own loan packages. We do not fund your loan; we simply broker it and try to match you with the best plan. Because we enter the competitive marketplace of rates on your behalf, we believe we can find lower rates. And because we are locally owned, we believe we can close a loan more quickly than a multinational bank and provide stronger customer service.