Q: What is APR?

A: The Annual Percentage Rate is the cost of credit expressed as a yearly rate. The APR combines interest rate, points, and related fees.

Q: What is a Finance Charge?

A: The Finance Charge is the cost of credit expressed as a dollar amount. It includes any charge payable directly, or indirectly, by the applicant, and imposed directly, or indirectly, by the lender, as a condition of receiving credit.

Q: What are Discount Points?

A: Discount Points are equal to a percent of the loan amount. 1.25 points are equal to 1.25% of the loan amount. For example: on a $100,000 loan amount that equals $1,250. Typically, if you pay points, it will lower the Interest Rate.

Q: What is a Loan Origination Fee?

A: Origination fees are expressed as points or as a percentage. A one point or one-percent origination fee is equal to 1% of the loan amount.

Q: What are Escrows?

A: An Escrow Account is used to protect monthly payments for taxes and insurance obligations.

Q: What is a Credit Score?

A: Credit scores were created for general use in making lending decisions and are based on credit data only. FICO* scores are one type of generic credit score. FICO scores range from approximately 400 to 900. The lower the score the greater the risk of default on a loan. A credit score below 620 gives a lender a strong indication that a borrower’s credit reputation is not acceptable.

Under the Fair Credit Reporting Act, all consumers can obtain a copy of their credit reports by calling:

	•	EquiFax: 800-685-1111
	•	Trans Union: 800-916-8800
	•	Experian: 800-682-7654

*FICO: Fair ISAC Credit Company developer of FICO scores

Q: What is Private Mortgage Insurance (PMI)?

A: Private Mortgage Insurance is a type of insurance provided by a private mortgage insurance company to protect the lender in the event of loan default. This type of insurance is required when a borrower has less than 20% equity in a home. Private mortgage insurance is paid monthly.

Q: What is ARM (Adjustable Rate Mortgage)?

A: An ARM is a mortgage that permits the lender to adjust its interest rate periodically based on the movement of a specific index. Example: 1-3-5 year Treasury Bill. There are generally limitations, such as 2% on the amount that the mortgage interest rate can go up or down.

Q: What is PITI?

A: PITI is an acronym for the items included in a monthly payment: principal, interest, taxes, and insurance.

Q: How do I determine how much I can afford?

A: Generally, you should qualify for monthly housing expense (PITI, or the monthly payment for mortgage principal, interest, property taxes and property insurance) equal to 33% of your gross monthly income. The best way to know with confidence is by getting pre-approved.