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Frequently Asked Questions about Borrowing

How does my credit score relate to my loan?

Your credit score (a number ranging between 300 and 850, roughly, depending on loan type) is calculated from many factors in your credit report - including amount of available credit, outstanding loan amounts, and payment history.

Banks and other lenders use credit scores to measure your credit-worthiness and likelihood to pay your debts. Borrowers with higher scores are deemed less risky, thus qualifying for better loan rates.

What information do I need to apply for a loan?

Generally speaking, you will need to supply proof of identity and proof of income (tax returns and/or W2 forms for the past couple of years), as well as various details regarding the property to be purchased. Your credit report may be checked and you may be asked to supply any number of details related to your employment and financial situation, including debts, assets, living expenses, net worth, etc.

How does loan-to-value ratio concern me?

A loan-to-value (LTV) ratio indicates what percentage of the total value of a property you intend to borrow. LTV is calculated by dividing the amount of the loan by the cost or value of the property. Conventional mortgage loans with an LTV of greater than 80% (and most FHA loans) generally require mortgage insurance. In other words, many loans require a downpayment of at least 20% to avoid mortgage insurance.

What are closing costs?

Closing costs are expenses incurred by buyers and sellers in transferring the ownership of real property. These may include origination fees, attorneys' fees, appraisal fees, loan fees, title search and title insurance fees, survey charges, recording fees, credit report charges, or other fees.