I have used this booklet in educating first time buyers, and here are some of the questions they commonly ask after exploring the topic:

Q: Since most home loans today are later resold through Fannie Mae or Freddie Mac, isn’t it true that all loans are basically the same?

A: In the world of first time home buyers, there are simply too many varieties of loan programs available to make the statement that they are the same.

It is true that, if you choose a conforming loan program, the underlying paperwork you sign at closing is likely to be identical regardless of where you obtain the loan. That’s because Fannie Mae and Freddie Mac have a "uniform documents" program, ensuring that all similar loans use the same legal language. But the terms and conditions of the loan are most affected by the interest rate and the settlement costs, and these can vary tremendously between lenders.

That is why I always recommend that you obtain a "good faith estimate" from every lender who quotes you a rate. That way, you have a listing of every expense you will be expected to pay at the closing table. If it’s not on the good faith estimate, you won’t have to pay it later.

Q: Why do lenders make it so confusing for buyers? Why can’t they simply offer the best type of loan and be done with it?

A: Because lenders are trying to accommodate different home buyers with different circumstances and needs.

For example, some first time buyers are especially short on cash, but have a good job with excellent prospects of earning more in the future. For them, a very low down payment loan with low closing costs could be combined with a "five year adjustable rate" loan program. Because the payment amount is low and "locked in" for the first five years, the buyer has time to build up his income while getting the house he wants now.

In contrast, if you have saved a substantial down payment, and can afford higher than average monthly payments, you might want to choose a fifteen year fixed rate loan with an extremely low interest rate for all fifteen years. This program, if you could afford it, would likely save you lots of interest dollars while building your equity in the house very quickly.

Q: What exactly is an amortization?

A: The word "amortize" means to reduce a debt over time using periodic payments including principal and interest.

Loans which are labeled "interest-only" carry lower payments because there is no pay back of the loan itself, at least for a number of years. Many people, including me, consider non-amortizing loans to be less safe, especially for first time buyers. That’s why I typically recommend a thirty year fixed rate loan.

Q: Why can’t I get a loan with a term of 40 years?

A: Because lenders have figured out that there is little benefit gained by extending the term of a fixed rate loan from 30 to 40 years.

For example, if you borrow $150,000 at 6% for thirty years, the monthly payment of principal and interest is just under $900. But if you extend that term from thirty to forty years, the payment drops only to about $825. Meanwhile, the additional cost to the borrower in interest over the life of the loan is more than $72,000!

Q: I understand that a "point" is calculated at one percent of the loan amount, but I don’t understand why one lender might charge a point while another lender charges none. Please explain.

A: In the early 1980's, Atlanta builders often paid points to lower high interest rates and stimulate sales.

The truth is that in today’s metro Atlanta market, we rarely see loan discount points being quoted. Instead, you should ask that all rates be quoted "at par," meaning with zero discount points.

Q: I heard a lender in Atlanta offer "no closing costs" on all their loans. How can they afford to do that?

A: There are actual and real expenses associated with the origination of a loan which conforms to Fannie Mae guidelines. Somebody has to pay them. And if any lender offers a loan with no closing costs, they are making it up by charging you a higher interest rate.

Q: I heard about a lender who offered their borrowers a chance to buy a "loan accelerator" program. It converts your loan to a half payment every two weeks and it saves you more than ten thousand dollars. Is this a good idea?

A: So called "accelerator" programs are entirely unnecessary. They typically charge $49 as an enrollment fee, then more than $100 per year as a "convenience" charge. Then they draft a half payment from your bank account every two weeks. This equals 26 half payments, which also equals 13 monthly payments per year. You can accomplish the same result for free by sending in one additional payment every year. And you save the fees as well!