How much should I expect to pay in closing costs?

Closing costs will vary from loan to loan depending on several factors: loan amount / property value / purchase or refinance / the county in which the property is located / your homeowner's (hazard) insurance policy / your county property taxes. The lender is required to provide you a Good Faith Estimate (GFE). A GFE will allow you to compare the costs that each lender charges.

What is Private Mortgage Insurance (PMI) and how much does it cost?

PMI may be required by lenders when you put less than 20% equity as a down payment. The purpose of PMI is simple. If you go into default on the loan, PMI insures the lender that they will be guaranteed repayment on a portion of the loan amount. PMI rates will vary from state to state and according to the loan-to-value (LTV) ratio. Typically, the higher the LTV, the higher the PMI premium will be. Some lenders will increase the interest rate to include PMI, others will add it in separately. To find out what your lender does, ask them to disclose their PMI rate to you.

What is an APR?

The APR, or Annual Percentage Rate, reflects the cost of your mortgage loan as a yearly rate. APR includes loan discount or origination points and fees and other credit costs in addition to interest. Thus, the APR could be higher than the rate that is stated in your mortgage or note. Lenders are required to disclose the APR to you under the Federal Truth-in-Lending Act in order to help you shop for the best mortgage rate. Unfortunately, the APR is often misinterpreted. The best way to shop for a mortgage loan and compare closing costs is to obtain a Good Faith Estimate (GFE) in writing from the lender.

What are "points and fees"? What are the advantages and disadvantages of paying them to reduce my interest rate?

Points and fees are a certain percentage of the loan amount that lenders charge up front as a way to offset the cost of doing business. Points and fees will vary with the interest rate and the loan amount. Typically, the lower the interest rate, the higher the points and fees. It is not always best to pay higher points and fees for lower interest rates. It is advantageous to pay points and fees up front when you have the funds available to do so and you are planning to live in the home throughout the life of the loan. If you do not plan to live in the home very long, you should ask your lender which scenario is best for you.

If I pay the bank back before maturity, is there a penalty?

No, there is not a penalty for early payment of the loan.

What are the pro's and con's of a 15 year vs 30 year loan?

A 15 year loan will have a lower rate and higher payments than a 30 year loan. With a 15 year loan you will build up equity quicker and pay the loan off sooner, saving you thousands of dollars in interest. However, this may not be an option for everyone since the payments are higher and it may be more difficult to qualify for the loan.

Why is a down payment needed? How much of a down payment will I be required to make?

Most lenders will require you to make a down payment in order to show them that you have a vested interest in buying the property. You might think of it as a form of collateral that reduces the risk to the lender if the borrower defaults on the loan. The amount of down payment that the lender will require will vary among different lenders and different loan programs. There are some programs which are available that require little (as low as 3% - 5%) or no down payment. However, with most loan programs, if your down payment is 20% or less you may be required to pay private mortgage insurance (PMI).