Wyndham Capital Mortgage realizes how much confusion comes attached with the home buying process. In addition to a home being one of the largest investments you’ll make in your life, there’re also several stages of buying a home, each with a multitude of steps that need to be completed. To help you keep your head above water and provide you with a port in the storm, we’re offering answers to frequently asked mortgage questions.
Answers to Frequently Asked Mortgage Questions
You asked we listened. Your mortgage questions answered:
- Should I Get an Adjustable or Fixed-Rate Loan?
- How Do I Check My Credit Report?
- What Is an Appraisal, and Do I Need One?
- Should I Refinance My Mortgage?
- What’s Included in a Monthly Mortgage Payment?
- How Much Home Can I Afford?
- What Type of Mortgage Loan is Right for Me?
- Do I Need a Mortgage Pre-Approval or Pre-Qualification?
- What Will My Closing Costs Be?
- How Do You Qualify for a Loan?
- How Do You Lock Your Mortgage Interest Rate?
- Can you get a mortgage without a credit score?
- What’s the difference between a pre-approval and pre-qualification?
- How much should I save for a down payment?
- How do interest rates affect your mortgage?
- What are mortgage points?
- When should I consider refinancing?
- What happens after you get preapproved for a home mortgage loan?
- How long does it take to close on a house?
- What happens at closing?
Don’t see your mortgage questions here? Reach out to a mortgage loan officer professional today.
1. Should I Get an Adjustable- or Fixed-Rate Loan?
The answer to this mortgage question mostly comes down to your finances and personal preferences. You may like the predictable payments of fixed-rate loans, or you may prefer to take a gamble and see if your payment amounts decrease after a specific period of time with an adjustable-rate mortgage. If you know you’ll be in your home for several years, a fixed-rate loan may be the way to go.
2. How Do I Check My Credit Report?
Just like you would with any major purchase or investment, it’s recommended that you first check your credit report and score to see what lenders will see when they run a credit check. Consumers are entitled to a credit report at no charge every 12 months from one of the three major credit bureaus: Equifax, TransUnion and Experian. Look over your report for errors, and be sure to correct them before applying for a mortgage. You may also want to take steps in improving your credit score in order to receive a more favorable interest rate on your loan.
3. What Is an Appraisal, and Do I Need One?
While this is technically two mortgage questions, the first commonly follows the second, so we might as well knock them both out at the same time. A home appraisal is done to determine the true value of a home, which may not be the same as the asking price. Such valuations should be done by licensed, professional and experienced experts.
As for the second part of this question, you may have no choice but to have an appraisal done on a home you’re thinking of buying. Lenders want to know the property is actually worth the amount you’re asking to borrow, especially because the property will become collateral for your loan.
Related: What’s Included in a Mortgage Loan?
4. Should I Refinance My Mortgage?
Several factors need to be considered when determining the answer to this mortgage question. Current interest rates, your new mortgage payment, how long you’ll be in your current home and closing costs should be examined while you’re reaching a decision. Common reasons/justifications for refinancing a home include:
- Taking advantage of lower interest rates
- Cashing out on home equity
- Converting between a fixed-rate and adjustable-rate mortgage
Be sure to consider your current and future financial situation as well before deciding whether the time is right for refinancing. While interest rates might be favorable, your finances might not be.
5. What’s Included in a Monthly Mortgage Payment?
Think of your mortgage payment as a single building composed of several floors, with each floor being devoted to a different department. When you pay the monthly total of your loan, it’s like sending employees to staff those separate departments, which include mortgage insurance, principal/interest, taxes and insurance. Some departments receive more employees than others, which means 10 percent of your mortgage payment could be devoted towards interest while 15 percent is funneled to principal.
Not all home loan terms are the same, mainly because not everyone has to have mortgage insurance. You also have the option of paying extra on your loan’s principal, which is always a good idea if you want to pay it off faster.
6. How Much Home Can I Afford?
The general rule of thumb is that no more than 28% of your monthly gross income should go to your monthly mortgage payment. Your gross income is the total income you bring home monthly before taxes and debt are paid. Lenders also determine how much home you can afford by looking at a few key financial components that make up your financial portfolio, including your:
- Credit Score
- Debt-to-Income Ratio
- Down Payment Amount
Using a simple mortgage calculator makes it easy to get a general idea of how much home you can afford by allowing you to enter in your down payment with current mortgage rates, estimated taxes and HOA fees (if applicable), giving you an example of what you can expect to pay when it comes time to apply for a home loan.
7. What Type of Mortgage Loan is Right for Me?
Finding a home loan that fits your needs is just as important as the house it’s financing. Here are the general guidelines for the main types of mortgages you can expect to see when choosing a home loan.
Conventional loans are ideal for borrowers with strong credit, stable income, and a debt-to-income ratio of less than 50%. Borrowers who finance with a conventional loan are only required to put 3% down; however, paying 20% down negates the need for private mortgage insurance (PMI). Conventional loans are broken down into conforming and non-conforming loans. Borrowers who need a loan exceeding the maximum conforming loan limit of $510,400 will require a non-conforming conventional loan.
Otherwise known as FHA, USDA and VA loans, government-insured loans are guaranteed by the federal government and most popular among first-time home buyers and those with less than ideal credit scores. If you were to default on your loan, the FHA would pay a claim to your lender. Because this takes the risk off of lenders, government-insured loans’ requirements are more forgiving, allowing lower credit scores, higher debt-to-income ratios, low-interest rates, and even down payment options as low as 3.5%. Consult with a mortgage loan officer to help guide you through the process of choosing the mortgage loan that’s suitable for your needs.
8. Do I Need a Mortgage Pre-Approval or Pre-Qualification?
Mortgage pre-approvals and pre-qualifications are strongly recommended if you want to be taken seriously as a buyer. Mortgage pre-approvals and pre-qualifications are like your financial resume. Your pre-approval lets the seller know you’ve got what it takes to be a serious contender for the purchase of their home. You may even find in the home search that some real estate agents and sellers require that you have a mortgage pre-approval in hand before they show you homes. Work with a mortgage company with a mortgage pre-approval program that goes above and beyond basic pre-approval requirements to give your pre-approval impressive curb appeal that stands out from the competition.
9. What Will My Closing Costs Be?
There is no set number for closing costs. Borrowers can typically expect to pay 2-5% of the loan amount due at the closing table. Closing costs will vary from lender to lender but usually include five mortgage fees you should be aware of, like:
- Appraisal Fee
- Loan-Related Fees
- Assumption Fee
- Attorney Fees
- Origination Fees
- Discount Fees/Points
- Prepaid Interest
- Broker Fee
- Mortgage Insurance Fees
- Taxes, Annual Fees & Insurance
- Title Fees
How efficient your lender operates could be the difference between saving or spending thousands on closing fees. Working with a mortgage loan company with digital advantages saves borrowers thousands with low closing costs and never charging hidden lender fees.
10. How Do You Qualify for a Loan?
Qualifying for a home loan may not be as easy as it used to be, but it’s nowhere near impossible. While different loan types (conventional, government-insured) have other qualifications, any borrower must meet some basic qualifying factors to be considered for a home loan (unless you plan to apply as a veteran).
On average, lenders like to see a DTI of 45-50% or less of your gross income, with a maximum back end DTI ratio of 43%. This figure is the maximum DTI ratio lenders feel borrowers can pay without getting into hot water.
Lenders generally prefer to see that you’ve maintained a stable income for at least two years.
The absolute minimum accepted credit score is 500. However, this will come with a higher interest rate. For a lower rate, try increasing your credit score to at least 580.
Many times a down payment amount you’ll be expected to pay is at least 3% for a conventional loan and 3.5% for an FHA loan.
11. How Do You Lock Your Mortgage Interest Rate?
Mortgage rates are constantly fluctuating. If you find yourself with a very low interest rate, you think you can get and are comfortable with the monthly mortgage payments, consider doing a rate lock. Rate locks are typically valid from loan approval to closing, or, 30-60 days and will prevent your mortgage rate from increasing. It’s important to note that unless you’re allowed a rate “float down,” you cannot lower your interest rate to a better one once you’re locked in.
Mortgage rate lock terms and conditions vary from lender to lender. Simply ask your lender about their rate lock program, when you should lock in your rate and whether or not you’ll be charged a fee for locking in your rate.
12. Can you get a mortgage without a credit score?
It is possible to get a mortgage without a credit score. To get a mortgage without a credit score, you’ll need to go through a process known as manual underwriting and provide proof that you pay your bills on time.
13. What’s the difference between a pre-approval and pre-qualification
A mortgage pre-qualification is essentially just a conversation between you and your lender about your financials, assets and down payment. A pre-approval, on the other hand, requires the lender to verify your financials by pulling your credit score, and submitting your financials in an application to the underwriting department. For this reason, a pre-approval is more accurate and carries more weight.
14. How much should I save for a down payment?
Most lenders will agree that you should aim to save 20% or more of the total loan amount for a down payment. Anything less than 20% could result in the need to pay extra insurances on your mortgage known as private mortgage insurance (PMI). Also, a larger down payment can increase your home equity and decrease your monthly mortgage payment to save you money in the short (and long) term. Most mortgage loans require a minimum of 3.5% down, so you should plan to at least have that much saved for a down payment.
15. How do interest rates affect your mortgage?
A lower mortgage interest rate gives borrowers more buying power and lowers the mortgage loan payment amount, saving you money over time. Higher interest rates will make a loan more expensive and limit the amount borrowers qualify for.
16. What are mortgage points?
Mortgage points are a way to prepay interest at the closing table to lower your interest rate throughout the life of your loan. Generally, each mortgage point is equivalent to 1% of your home’s value. Check out our blog to learn more about mortgage points.
17. When should I consider refinancing?
Refinancing your home loan is a great idea if it allows you to:
- Lower your interest rate enough to justify closing costs (even 1% can be enough to make refinancing worthwhile)
- Refinance from an adjustable-rate mortgage to a fixed-rate mortgage
- Get a lower interest rate/loan term
- Tap into your home’s equity to consolidate debt or make expensive home improvements
18. What happens after you get preapproved for a home mortgage loan?
Once you’ve been pre-approved for a home loan, you’ll want to hire a real estate agent (if you choose to use one) and begin the home search. Pre-approvals are generally only valid for 30-60 days, so time is of the essence.
19. How long does it take to close on a house?
It takes 30-45 days, on average, to close on a home. Every situation is different. The home closing process can be shortened or extended from this average based on several factors like financing, seller conditions, repairs, and the like.
20. What happens at closing?
On closing day you’ll sign all legal documents needed to grant you ownership of the home. You’ll also play your closing costs and any other payments needed to close the deal. You should expect to receive a Closing Disclosure (CD) listing out all of your costs and what’s due on closing day so there are no surprises.
These are just a few of the most frequently asked mortgage questions. Have more mortgage questions? Comment below or make a list and reach out to a knowledgeable and trustworthy home lending professional to learn more.