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Q. What is
PMI, and how can it be eliminated?
A. PMI is Private Mortgage Insurance.
When you put less than a 20% down payment, PMI is required.
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Q. What
are Discount Points?
A. Also called
"points", these one-time charges are paid to the lender at
closing to obtain a lower interest rate on the mortgage loan. One point is
equal to 1% of the loan amount.
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Q. What
are Closing Costs?
A. Fees paid by the buyer or
seller at closing that are usually 3-6% of the mortgage amount. These fees
include appraisal fees, taxes, title insurance, underwriting, survey and
attorney's fees.
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Q. What
is Homeowner's Insurance, and is it required?
A. Homeowner's coverage includes
hazard insurance, personal liability and theft. When purchasing a home,
lenders require the first year of insurance to be paid in advance.
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Q. How much
can you afford?
A. The general rule of thumb is
three times your annual gross income.
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Q. Why are
credit reports so important?
A. A credit report lists all of your credit amounts, including
charge cards and provides a detailed payment history. Lenders use this
information in determining eligibility for loans.
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Q. What is the
Debt-to-Income Ratio?
A. It is a ratio comparing all
of your monthly debt payments, including credit cards and car payments to
your monthly income. This ratio is used by the lender as one factor to see
if you qualify for a mortgage loan.
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Q. What is an
Adjustable Rate (ARM) Mortgage?
A. A type of loan where the
interest rate can go up or down, depending on market conditions. Changes
in the rate are determined by a financial index. ARM loans have a cap or
limit on how much the interest rate can change.
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