Mortgages and Refinancing can be complicated to understand and very intimidating. The good news is that there are guidelines that lenders must follow, but if you’re fortunate enough, you will have a great experience with an excellent lender. Buying a home shouldn’t intimidate you, it should excite you, because you worked for it and you deserve it! Not only is purchasing a home a great accomplishment, but a wonderful investment. Earn equity on a property instead of renting and helping someone else pay off their loan. Let’s dig into the 21 most common mortgage questions that you may have!
How much of a down payment do I need to buy a home?
It’s a myth that you need at least 20% down to purchase a home, you actually only need at least 3.5%. If your FICO (Credit Score) is below 580, that minimum could rise as high as 10%.
How great does my credit score (a.k.a. FICO Score) have to be?
Your FICO Score can be as low as 500 and of course can be higher. Try to aim to increase your credit score to at least be 620 or higher before purchasing a home, assuming you are not in a rush to purchase a home, because this will help you out in the long term. Sometimes it’s best to work on your Credit Score until you reach a better FICO. Your Credit Score is what determines if you qualify for a loan to begin with, but it also has an impact on your mortgage terms.
What documentation does a mortgage broker or financial institution request in order to get you pre-approved for a mortgage, also known as a home loan?
Be prepared to show all of the following:
- Income verification (Last two years of tax returns, W-2s, 1099s, and your last few pay stubs)
- Driver’s license and Social Security card (or alternative ID)
- Bank statements
- Proof of funds to close (and an explanation of where they came from, if it’s not obvious)
- If some or all of your down payment is coming from a gift, you will need gift letter from the source of the funds that confirm they are gift, not a loan.
Should I get quoted from a Mortgage Broker or a Bank?
The MAIN difference is that a bank mortgage officer represents ONLY products their financial institution offers, but a mortgage broker is an intermediary who works with MULTIPLE lenders, getting wholesale rates and prices for each product, which allows them to find you a better rate. That means that a mortgage broker can search multiple programs from different lenders, which maximizes the chances of finding a better program for you. Mortgage Brokers are a popular choice because they may provide you with better products and specialized programs that banks may not offer or even know about. Keep in mind, banks ONLY provide you with their options, those options are limited, so why limit your mortgage options? It’s also easier to negotiate profit margins with mortgage brokers, because mortgage brokers (a.k.a. loan brokers are required by law to disclose all fees upfront and can charge ONLY that disclosed amount.
Should I get pre-approved for a mortgage or find a realtor?
If you are ready to purchase a home, the best step is to get pre-approved first. This way you know how much of a home you can truly afford and do not waste your time or the realtors. This also gives you the opportunity to fix or change anything on your credit report. Sometimes we never look at our credit report and find something that should not be on there, it’s best to get any hiccups out of the way. Once you get pre-approved you can go find a realtor and they will take you more seriously, because you will have an approval letter and they will know what you can truly afford. A lot of realtors will not begin working with you until you get pre-approved. This also allows you to make an offer on a home immediately.
What should I do after I get pre-approved for a mortgage?
Find a realtor and also start looking for homes on different websites. This way you will be able to show your realtor what you like so when they find homes for you, they have an idea of what to look for. You will definitely discuss the primary requirements, but sometimes a visual is better than verbally expressing oneself. Don’t forget that there is a beautiful home out there with potential, even if it is not perfect, you can always renovate. Any property can become your dream home once you add your special touches!
How long is my mortgage rate good for, should I “lock” it in?
Usually, a rate lock is good for 30, 45 or 60 days, though that time period can be shorter or longer; once that period expires, the borrower is no longer guaranteed the locked-in rate unless the lender agrees to extend it.
If you’re approved for a home loan at an interest rate you’re comfortable with, and the resulting monthly payment fits your budget, that’s the time to consider locking your rate.
What are closing costs and how are they calculated?
Mortgage closing costs range between 2%-5% of the loan cost, including property taxes, mortgage insurance, title insurance, and other fees. It all depends on the home’s purchase price, discount points, transfer taxes and other factors.
What are mortgage points or discount points?
Mortgage points, also known as discounted points, are fees that you pay the lender to lower your interest rationed minimize your monthly payment.
How long does it take from beginning an application for a home loan, to actually funding on a mortgage?
From start to finish, it takes approximately anywhere between 15 days (for clients that provide all requested documents quickly and encounter no hiccups during the process) to 45 days to complete the approval and funding process.
What does it mean to be in escrow?
Now that the seller and buyer have agreed to transfer the ownership of property, a third party will handle the actual transaction of exchanging money and and related documents. “Being in Escrow” is a legal procedure that is used when real property requires a transfer of title. The process ensures that funds aren’t distributed until both buyer and seller meet the terms and conditions of the purchase agreement. Escrow closes when the deed gets recorded in the buyer’s name.
How do you calculate a mortgage payment?
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
The variables are as follows:
- M = monthly mortgage payment
- P = the principal amount
- i = your monthly interest rate. Your lender likely lists interest rates as an annual figure, so you’ll need to divide by 12, for each month of the year. So, if your rate is 5%, then the monthly rate will look like this: 0.05/12 = 0.004167.
- n = the number of payments over the life of the loan. If you take out a 30-year fixed rate mortgage, this means: n = 30 years x 12 months per year, or 360 payments.
Try our Mortgage Payment Calculator to get an estimate.
What is included in my mortgage payment?