Mortgage Q&A


Q: The rates and fees for different lenders all vary. How do I compare the two?
A: Any lender in the country can get you any rate you want. It is a matter of how much you have to pay to get that rate. The best way to compare two lenders is to look at the APR (annual percentage rate). The APR will show what the interest rate is with all the closing costs and lender fees figured in. This is useful because some lenders will charge an origination fee and provide a lower rate, while another will not charge the origination fee, but may have a higher rate. The APR is the best way to compare. You should be advised that not all lenders calculate APR the same way.┬áThe best way is to use the APR calculator and enter the rate and all the fees the lender is charging. This will give you an “apples to apples” comparison.

Q: What does “PITI” stand for?
A: “PITI” is a mortgage term that means “Principal, Interest, Taxes, and Insurance”. These four thing should be figured into your payment, because it is the total cost of owning the home. Some lenders will only calculate principal and interest to try and trick uneducated borrowers into thinking their rates are much better than that of their competitors. In Texas this makes a huge difference because property taxes are a significant portion of your payment, sometimes even more than the principal and interest.

Q: What are points, and should I pay them?
A: Points are fees you pay to the lender to lower the interest rate of your loan. One point is equal to 1% of the loan amount, not the sales price. Points can be expressed as “discount points” which buy the rate down either permanently or for a specified amount of time. The origination fee many lenders charge is also a point that you are paying. Most lenders that charge an origination fee will have a lower rate than lenders that do not charge this fee. Any lender can add points to your closing costs to lower the rate. Points are essentially prepaid interest. A good loan officer can help you decide if you should pay points, or you can use the mortgage calculators page to run some numbers yourself.

Q: What are “escrows”?
A: An escrow account is opened anytime you put money up for safekeeping. When you enter into a contract to purchase a home, you will “escrow” your earnest money. This money is still yours, and will be credited to your closing costs, or down payment. You may also be required, or chose to “escrow” taxes and insurance with your lender. This means that every month when you make a payment, you are also paying that months portion of property taxes and insurance. At the end of the year when taxes are due, your lender will pay the taxes and insurance renewal out of your escrow account.

Q: How often do interest rates change and how much?
A: Interest rates typically change every day, and sometimes multiple times during a day. Mortgage rates are based on the bond market, so an increase or decrease in rates depends on the market activity and can be hard to predict.

Q: How do I lock an interest rate?
A: You will need to have a completed loan application and all the supporting documents submitted to the lender as well as an executed contract. As soon as you submit this to your loan officer, they can then lock your interest rate. It is best to have submitted all your documents and loan application up front. Then once you get an offer accepted, your lender can immediately lock the rate.

Q: Should I use a real estate agent?
A: Absolutely! Buying a home is the single largest purchase most people make. The real estate market and process of purchasing a property is very complex. Would you go to court without an attorney if you had $100,000 or more on the line? You should hire an experienced agent to represent you as a buyer’s agent. This means that they work for you and are on your side. They will advise you on every step in the transaction, and make sure you do not overpay for a property. The listing agent will pay the buyer’s agent a portion of their commission at the closing, so hiring an agent will not cost you anything. In fact it will probably save you money and a lot of headaches. Never contact the listing agent! They represent the seller of the property, and have a fiduciary duty to get the seller the best price and terms for the property.