Frequently Asked Questions

I don't have enough cash set aside for a down payment, but I can afford to pay a mortgage. What should I do?

With today's prices of homes, lenders have added several programs to accommodate a no or low down payment loan. That being said, you should be educated in the differences of each. Sometimes you will pay a higher interest rate because of the increased risk and may be required to pay private mortgage insurance depending on how your loan is structured. There are also designated First Time Homebuyer loans through finance agencies. You may have a lower rate, but beware that there are restrictions. There are income limits, purchase price limits and possible recapture tax ramifications when you decide to sell.

What is the normal down payment procedure when purchasing an existing home with a 30-year fixed rate mortgage?

As you know, you can finance up to 100% of the purchase price of a home. However, the more you can put down the better the loan program. The ultimate would be 20% down so you can avoid private mortgage insurance and have the choice to escrow taxes and insurance. There are programs to avoid private mortgage insurance even if you have as little as 5% down. Most would involve a 2nd mortgage that would carry the difference. This secondary loan is typical for 10-15 years and carry a higher interest rate than your primary loan. You would want to discuss these options with your lender to learn which program would fit your needs.

What is the difference between discount points and loan-origination points in a 30-year fixed-rate mortgage?

An origination point represents money paid to the originating lender as compensation for preparing the loan and arranging financing. They're called points because a point represents one percentage point of the loan amount. For example, one point on a $200,000 loan is $2,000. A discount point is prepaid interest. You can lower the stated interest rate on your loan by paying discount points, although paying points will increase the loan's annual percentage rate (APR). Talk to you lender about whether or not this approach would be beneficial to you. Not likely if you don't plan to stay in your home.

What is the difference between a mortgage rate quoted and the APR? Which one should I be looking at when I am looking at lower mortgage rates?

Along with the stated interest rate on the mortgage, it includes how points and closing costs affect that rate. Using an APR to compare loans isn't a definitive comparison, because the Truth-in-Lending Act allows lenders to estimate closing costs and permits some rounding, but it's a better measure to use when comparing loans than the stated interest rate.