What are discount points?

Discount points are charged by mortgage lenders as part of the cost of getting a loan. Each point is equal to 1% of the loan amount. In most cases, the charge is not for any particular service but is additional interest on the loan. Therefore, points add to the effective interest rate on the loan. Points on loans to buy a house may be deductible as mortgage interest from your taxable income, provided certain conditions are met. In refinancing, the deduction for points must be spread out over the life of the loan.

Why did I get turned down for a mortgage?

Before lenders grant mortgage loans, they assess the risk that the borrower will default on the payments. This is called "qualifying the borrower" and depends heavily on the income and credit history of the applicant. People are generally turned down if they don't have established credit, if they have had a loan foreclosed in the past, if their income is too low to support the payment burden, or if their existing debt is too high to allow for additional debt. Certain qualifying standards must be met for the loan to be approved for FHA insurance or VA guarantees. Even those granting conventional loans use relatively standard qualifying procedures in order to make those loans acceptable in the secondary market.

Is it expensive to refinance a mortgage?

Fees for refinancing may be more expensive than for the original loan. If you are replacing an existing loan, you may have to pay a prepayment penalty of as much as 1% of the old loan balance. In addition, arranging a new loan may require payment of closing expenses, including discount points, application fee, survey fees, and title insurance. Some of these costs may be waived if the loan is with the original lender. Currently, many lenders are reducing or waiving much of the closing costs for such loans.

What is a home equity loan?

Basically, a home equity loan is a second mortgage that allows a homeowner to access the accumulated equity in the home. The loan may be set up as a traditional second mortgage or as a line of credit. The traditional loan provides a lump sum when the loan is closed, whereas the line of credit gives the borrower the right to draw cash over time as needed.

I'm self-employed. What kind of documents do I need to apply for a mortgage?

Lenders often ask for the following types of documents from self-employed people:

• Personal income tax returns for the past two years
• Business income tax returns (if you are incorporated) for the past two years.
• A current balance sheet
• A current profit and loss statement
• A business credit report fee
• A personal credit report fee

The decision on your loan will be made on how both you and your company are doing.