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First time home buyer looking at mortgages and having a hard time understanding the difference between good and bad on rates.

On a loan estimate I have been quoted 4.75% rate(seems high?) and 5.795% APR on a 30 year mortgage.

What factors should I be looking at to understand if this is a good deal or not? This is on an FHA loan with 3.5% down and my credit score is just below 680.

I am also trying to understand points. On this estimate it looks as if my origination fee is 1 point.

I've read basics such as: https://www.bankofamerica.com/home-loans/mortgage/finding-the-right-loan/apr-vs-interest-rate.go

My main question is what should I expect for the difference between APR and rate from a lender? On an FHA loan with 3.5% down should I always expect to be paying down in points?

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  • Based on your other question here, I added the United States tag to your question. Please correct the tag if this isn't correct.
    – John Bensin
    Commented Aug 10, 2013 at 18:45
  • 2
    With 3.5% down, how much will you pay in PMI? Rates and home prices are not likely to shoot up overnight. I suggest you wait, and save every dollar you can toward a higher down payment. Get a roommate, eat rice and beans, etc. 4.75 isn't too bad, but the APR is awful.
    – JTP - Apologise to Monica ♦
    Commented Aug 10, 2013 at 20:49
  • We are looking at doing a 5% down conventional loan to avoid the mortgage insurance. Is this advisable? Other than the obvious, why?
    – pablo
    Commented Aug 12, 2013 at 5:17

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My main question is what should I expect for the difference between APR and rate from a lender? On an FHA loan with 3.5% down should I always expect to be paying down in points?

The difference between the quoted rate and the APR comes from the fees and points. While nominal rate is used to calculate the interest, the APR is the rate that includes all the actual charges, not only interest. So if you're quoted rate 4.75 but the APR is 5.795 it means that you have a yearly overhead of 1.045% over the stated rate. That's a lot. Especially if its not actually spread over the life time of the loan, but charged upfront (points, closing costs, origination fees etc).

Here's the Bankrate article on the Rate vs. APR question.

You should not always expect paying points, and sometimes you can avoid points by choosing a higher nominal rate. You need to shop around for rates (including the fees, points, closing costs, etc, not just the nominal rate). You should also calculate whether paying points is more beneficial than higher rates, it depends on the difference and the expected life time of the loan.

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