FAQs About Mortgages
A mortgage is a loan issued by a bank to help a borrowers by a house. The house is used as collateral, meaning the bank can force the borrower to sell the house to recoup its expenses if payments are not made.
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What Factors Determine If You Get a Loan?
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Lenders look at a number of factors including credit score, cash reserves, down payment and your debt-to-income ratio when determining whether to issue a mortgage. Credit scores of 760 and higher usually qualify for the best rates.
How Much Can You Afford?
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Banks use two main ratios to determine how much you can borrow. The front-end ratio limits the monthly mortgage payment to between 26 and 29 percent of your monthly income. The back-end ratio limits the total debt payments, including your mortgage payments, to between 33 and 41 percent of your monthly income.
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What Is PMI?
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PMI stands for private mortgage insurance. This is charged when the down payment is less than 20 percent to pay for insurance in case the borrower defaults.
What Are Origination Points?
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Origination points are fees the bank charges for the loan. A point costs 1 percent of the value of the loan.
What Are Discount Points?
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Discount points are optional for borrowers. Each discount point paid reduces the interest rate of the loan by about 0.25 percent.
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