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 interest rate and APR?
The interest rate is the cost of borrowing money. The annual percentage rate (APR) is an interest rate that reflects not just the principal, but all costs associated with the loan, such as underwriting fees, points, etc. The APR is always higher than the interest rate.
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. There is such a thing as a no-PMI loan, where the interest rate is adjusted higher and PMI is not applied. This can be a good solution depending on how long you expect to stay in the home.
How much do I need to put down for my loan?
This depends on your loan type. In general, USDA and VA loans require 0% down; FHA loans require 3.5% down; and conventional loans require either 3% or 5% down, depending on the property address, the borrower’s income, and whether or not he borrower is a first-time homebuyer.
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 2 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.