Frequently Asked Questions: Points,
Rates and ARMS what does it all mean?
WHAT ARE POINTS?
In mortgage terminology a “point” is one percentage
point of a loan. When a lender speaks of points what he or
she is actually talking about is a pre-payment of interest
on your mortgage. If a no-point mortgage has an interest rate
of, say, 7 percent, then by paying 2 points (or 2 percent
of the loan amount) upfront the lender should reduce the interest
rate on your loan.
WHAT IF I’VE DECLARED BANKRUPTCY IN THE PAST? CAN I
STILL GET A MORTGAGE?
The short answer is “Yes.” In most cases you will
have to wait 2 years following a bankruptcy or 3 years following
a foreclosure before you would be considered for a new mortgage.
The interest rate on your mortgage is influenced strongly
by your credit rating, so your ability to qualify for a mortgage
will be affected by your credit history following your bankruptcy
or foreclosure.
WHICH IS BETTER, A FIXED-RATE OR AN ADJUSTABLE-RATE MORTGAGE?
There is no one easy answer to that question. The answer can
depend on several factors. If interest rates are at or near
historic lows you are definitely better off getting a fixed-rate
loan. If interest rates are at or near historic highs then
you might be better off getting an adjustable-rate loan. Many
first-time buyers on a tight budget choose an adjustable-rate
mortgage because the starting rate is generally less than
for a fixed-rate loan which allows them to qualify more easily
for an adjustable-rate loan.
WHAT IS THE DIFFERENCE BETWEEN PRE-QUALIFYING AND PRE-APPROVAL?
A pre-qualifying letter is a document written by a lending
officer that tells prospective sellers that the lending officer
believes you will qualify for a loan for a certain amount
of money. This can make a selling more comfortable about accepting
an offer since they have a reason to believe that the person
making the offer will qualify for the loan. A pre-approval
is one step above a pre-qualification. In order to get a pre-approval
document the lender must actually verify your down payment,
credit history and income. A pre-approval is equivalent to
cash in the bank and allows a buyer to negotiate confidently
with a seller.
WHAT IS A RATE LOCK?
It is a commitment by the lender to make your loan at a certain
interest rate, with a certain number of points. A rate lock,
as the name implies, locks in your rate for a certain number
of days. The longer your rate lock is good for, the greater
the risk to the lender and so the higher the interest rate
or the points will be. Generally a lender plans to disburse
funds within the time-frame of the rate lock.
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