Loan FAQ Library

Loan basics

What is a loan-to-value (LTV) ratio?

The loan-to-value ratio (LTV) compares your loan amount to the appraised value of the property being purchased or refinanced. For example, borrowing $320,000 on a $400,000 property...

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Loan basics

What is the difference between APR and interest rate?

The interest rate is the annual cost of borrowing the principal loan amount, expressed as a percentage. The Annual Percentage Rate (APR) is broader — it includes the interest rat...

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Loan basics

What is amortization and how does it work?

Amortization is the process of paying off a loan through scheduled, equal monthly payments over a set period. Each payment covers both interest and principal, but the proportion sh...

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Loan basics

What is the difference between a fixed-rate and adjustable-rate loan?

A fixed-rate loan locks in the same interest rate for the entire loan term, so your monthly principal and interest payment never changes. This provides payment predictability and p...

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Loan basics

What is private mortgage insurance (PMI)?

Private mortgage insurance (PMI) is insurance that protects the lender — not the borrower — if you default on your loan. It is typically required on conventional loans when you...

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Loan basics

How much down payment do I need for a loan?

Down payment requirements vary by loan type. Conventional loans can go as low as 3% for first-time buyers, though 20% avoids PMI. FHA loans require just 3.5% with a credit score of...

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Loan basics

What is the difference between mortgage pre-qualification and pre-approval?

Pre-qualification is an informal estimate of how much you might borrow based on self-reported income and debt information — no verification is done. Pre-approval is a more rigoro...

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Loan basics

What is a debt-to-income (DTI) ratio?

The debt-to-income ratio (DTI) measures your total monthly debt payments divided by your gross monthly income, expressed as a percentage. For example, if you earn $6,000 per month...

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Loan basics

What is an escrow account in a mortgage?

An escrow account is a third-party account your lender manages to collect and pay property taxes and homeowner's insurance on your behalf. Each month, a portion of your mortgage pa...

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Loan basics

What are mortgage discount points?

Mortgage points (also called discount points) are upfront fees paid to the lender at closing in exchange for a lower interest rate. One point equals 1% of the loan amount. Paying o...

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Loan basics

What are closing costs and how much should I expect to pay?

Closing costs are fees paid at the end of a real estate transaction to finalize the loan. They typically range from 2% to 5% of the loan amount and include lender fees (origination...

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Loan basics

What is the difference between a hard and soft credit inquiry?

A hard inquiry occurs when a lender pulls your full credit report to make a lending decision. It can lower your score by 2–10 points and stays on your report for 2 years, though...

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Loan basics

What is a balloon payment loan?

A balloon payment loan has lower regular monthly payments but requires a large lump-sum payment at the end of the loan term. For example, a 7-year balloon mortgage might calculate...

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Loan basics

What is an interest-only loan?

An interest-only loan allows you to pay just the interest charge each month for a set period (typically 5–10 years), without reducing the principal balance. After the interest-on...

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Loan basics

What is mortgage refinancing and when should I consider it?

Refinancing replaces your existing mortgage with a new loan, typically to obtain a lower interest rate, reduce your monthly payment, shorten your loan term, or access home equity....

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