Frequently Asked Questions
When Should I Refinance My Mortgage?
Refinancing is a smart financial move when mortgage rates drop at least 1%–2% below your current rate. Lowering your rate can significantly reduce your monthly mortgage payment, potentially saving you thousands over time.
💡 Consider refinancing if:
✔ Interest rates are lower than your current mortgage rate
✔ You want to reduce your monthly payment or pay off your loan faster
✔ You need to access home equity for renovations, investments, or debt consolidation
✔ You want to switch from an adjustable-rate mortgage (ARM) to a fixed-rate loan
Not sure if refinancing is right for you? A lender can help analyze your current loan, financial situation, and goals to determine if it’s the right time to refinance.
What Are Mortgage Points?
Mortgage points are fees paid upfront to the lender to reduce your interest rate. They are also called “discount points”, and 1 point = 1% of your loan amount (e.g., $1,000 on a $100,000 loan).
✔ Benefits of Paying Points:
✔ Lowers your interest rate and monthly payment
✔ Saves money over the life of your loan
✔ Helps borrowers qualify for larger loan amounts
❌ When Paying Points May Not Be Ideal:
✘ If you plan to sell or refinance within a few years, the upfront cost may not be worth the savings.
✘ If you don’t have extra cash at closing, it might be better to keep your funds for other expenses.
A good rule of thumb: Paying points makes sense if you plan to stay in your home for at least 5 years. Otherwise, it may take too long to recover the upfront cost.
Should I Pay Points to Lower My Interest Rate?
Paying discount points can be a great way to lower your mortgage payment—but it’s not always the best option.
Paying Points Makes Sense If:
✔ You plan to stay in your home for 5+ years
✔ You want to lower your monthly mortgage payment
✔ You have extra cash available at closing
When It Might Not Be Worth It:
✘ If you plan to sell or refinance within 1–2 years, you may not save enough to justify the upfront cost.
✘ If you need cash for moving, repairs, or emergencies, it might be better to keep that money on hand.
💡 Pro Tip: Use a mortgage calculator to compare the upfront cost of points versus your monthly savings to see how long it will take to break even.
What Is an APR (Annual Percentage Rate)?
The Annual Percentage Rate (APR) represents the true cost of your mortgage, including the interest rate, loan fees, and closing costs. It’s designed to help borrowers compare loan offers more accurately.
✔ A lower APR generally means a lower-cost loan
✔ Includes lender fees, discount points, and prepaid interest
✔ Does NOT affect your monthly mortgage payment
💡 How to Compare Loans: Ask lenders for a loan estimate and focus on total costs rather than just APR—some loans with low APRs may have higher hidden fees.
What Does It Mean to Lock an Interest Rate?
A rate lock guarantees your mortgage interest rate for a set period (typically 30-60 days) while your loan is being processed.
Why Lock Your Rate?
✔ Protects you from rate increases before closing
✔ Helps with budgeting and financial planning
✔ Can sometimes be extended for an additional fee
💡 When to Lock: If rates are low, locking in your rate can prevent unexpected increases. However, if rates are dropping, you may want to wait.
What Documents Do I Need to Apply for a Mortgage?
To speed up approval, be prepared with the following:
🏡 Property Details:
✔ Signed sales contract
✔ Proof of earnest money deposit
✔ Contact info for realtors, attorneys, and insurance agents
💰 Income Verification:
✔ Recent pay stubs & W-2s
✔ Tax returns (if self-employed)
✔ Proof of alimony, child support, Social Security, or VA benefits (if applicable)
🏦 Assets & Down Payment:
✔ Bank statements (last 3 months)
✔ Gift letter (if receiving down payment assistance)
✔ Documentation of stocks, bonds, or retirement funds
💳 Debt & Credit Information:
✔ List of current loans and credit card balances
✔ Mortgage/rental payment history
✔ Court documents for alimony or child support (if applicable)
💡 Pro Tip: Providing complete and accurate documentation upfront helps avoid delays in processing your loan.
How Do Lenders Evaluate My Credit?
Lenders use your credit score and history to determine your mortgage eligibility. Factors that impact your credit score include:
✔ Payment history (late payments can lower your score)
✔ Debt-to-credit ratio (using too much of your available credit is risky)
✔ Length of credit history (longer history = better score)
✔ Recent credit inquiries (too many applications can hurt your score)
🔎 Check your credit score for free at www.annualcreditreport.com.
How Can I Improve My Credit Score?
✔ Pay your bills on time every month
✔ Reduce credit card balances to keep your credit utilization low
✔ Avoid opening multiple new credit accounts before applying for a mortgage
✔ Check your credit report for errors and dispute inaccuracies
Even small improvements can make a big difference in the mortgage rate you qualify for.
What Is a Home Appraisal?
A home appraisal is an evaluation of a property’s market value, required by lenders to ensure the loan amount does not exceed the home’s worth.
✔ Appraisers assess location, condition, and comparable home sales
✔ The final appraisal value affects your loan approval and terms
✔ If the appraisal is lower than the purchase price, you may need to renegotiate or pay the difference
What Is Private Mortgage Insurance (PMI)?
PMI is required for conventional loans when your down payment is less than 20%. It protects the lender if you default on the loan.
💡 How to Avoid PMI:
✔ Make a 20% down payment
✔ Use VA loans (no PMI required for eligible veterans)
✔ Consider 80-10-10 financing (split your mortgage into two loans)
What Is 80-10-10 Financing?
80-10-10 financing is a loan strategy that helps homebuyers avoid Private Mortgage Insurance (PMI) while reducing their out-of-pocket down payment. This method is ideal for buyers who can’t make a full 20% down payment but want to sidestep PMI costs.
How Does It Work?
✔ 80% – First mortgage (traditional home loan)
✔ 10% – Second mortgage (home equity loan or piggyback loan)
✔ 10% – Cash down payment
By structuring the loan this way, you avoid PMI, which is typically required for down payments below 20%.
Is There an Alternative?
Yes! If you can only afford a 5% down payment, you may qualify for 80-15-5 financing:
✔ 80% first mortgage
✔ 15% second mortgage
✔ 5% down payment
⚠️ Keep in Mind: The smaller the down payment, the higher the lender’s risk, meaning higher interest rates and potential higher loan fees.
💡 Who Benefits from 80-10-10 Financing?
✔ Buyers who want to avoid PMI costs
✔ Borrowers with strong credit and stable income
✔ Homebuyers looking for lower upfront costs
What Happens at Closing?
Closing (also called “settlement”) is when you officially take ownership of the home.
✔ Review and sign final loan documents
✔ Pay closing costs (bring a cashier’s check if needed)
✔ Complete a final walkthrough of the property
✔ Receive the keys to your new home!
Still Have Questions? Let’s Talk!
