The mortgage application process can be complicated, and it’s natural for borrowers to have some inquiries. As part of our efforts to educate our readers, we’ve compiled a quick list of common mortgage questions, along with some brief answers. If you need mortgage information that isn’t covered here, feel free to reach out to LoanFleet directly.
A: When you meet with a lender, you can expect them to clearly outline your options, and answer any questions you may have. Additionally, you should anticipate that they will request some paperwork, ensuring you’re qualified for a mortgage loan.
A: Once your loan process begins, you’ll need to supply some personal financial information, which your lender will use to ensure that you are creditworthy. Specifically, you’ll need to supply:
- Proof of where you work
- Proof of income
- Information about any outstanding debts or liabilities
- Information about any financial assets you have
- Information about the kind of down payment you plan to make on the home
Your credit score is a numeric value that’s intended to depict your creditworthiness. It’s based on your financial history, including current debts, bills you neglected to pay, etc.
A credit score will be a number between 300 and 850, and the higher your credit score is, the more desirable you’ll be in the eyes of lenders.
Generally, lower credit scores will make it harder for you to qualify for loans or to get the best mortgage rates. Low credit scores may also impede you from gaining employment.
This is one of the most common mortgage questions, and the answer is pretty simple: Even without a credit score, you can still apply for a mortgage. You’ll just need to submit some additional paperwork, for a process known as manual underwriting, allowing your lender to better assess your creditworthiness.
Most lenders will require that some time pass, and that you rebuild your credit score, before you can qualify for a mortgage loan. The amount of time you have to wait may range from two to seven years.
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If you talk with your lender and supply some basic information about your income and financial status, they may pre-qualify you; this just means that they perceive you to be creditworthy enough to get a loan.
Getting pre-approved requires you to provide some additional information, but it also carries more significance. Pre-approval will help you determine exactly how much of a loan you can qualify for, and it also signals to sellers that you’re serious and ready to move forward with a real estate transaction.
One of the most critical mortgage mistakes you can make is to bite off more than you can chew; while this isn’t set in stone, a good rule of thumb is that monthly mortgage payments should be no more than 25 percent of your monthly income. This leaves you with plenty left over for utilities and for other expenses.
Yes, and in fact, this can be a smart move: Applying for a loan can help you determine exactly how much of a loan you can actually get, and thus how much home you can afford. This can help guide you in your house hunting and prevent you from falling in love with a listing that exceeds your budget.
When you meet with a lender, they can provide you with mortgage information about several different loan types. Common examples include:
- Fixed-Rate Conventional Loan
- Adjustable-Rate Mortgage (ARM)
- Department of Veterans Affairs (VA) Loan
- Federal Housing Administration (FHA) Loan
With VA loans and FHA loans, you actually don’t need to make much of a down payment at all.
With more conventional loans, you may only need to make a 10 percent down payment. However, 20 percent down payments will free you from private mortgage insurance (PMI) requirements, which can result in lower payments overall.
So, making a down payment of 20 percent is often recommended, but it’s not mandatory.
At LoanFleet, many of the questions we get are ultimately about mortgage rates.
Basically, high interest rates mean higher monthly payments. They also mean you’ll pay more interest overall, over the lifetime of your loan.
By contract, lower mortgage rates mean lower monthly payments, and less interest paid over the lifetime of the loan.
Timing your loan application to take advantage of the best interest rates is hard, but there are some other steps you can take to keep rates down. For example, a 15-year loan will generally come with lower interest rates than a 30-year loan.
Mortgage rates can fluctuate from day to day. “Locking in” a rate with your lender guarantees the rate you’ll pay. Usually, this guarantee holds for a window of 30 to 60 days.
Mortgage points represent a way to get lower mortgage rates. Basically, points allow you to prepay interest; each point corresponds to 1 percent of the total home value. Prepaying mortgage points may translate into lower interest rates overall, and thus to lower monthly payments.
When you make that monthly mortgage payment, it includes a portion of the mortgage principal as well as interest. However, it may also include the following:
- Private mortgage insurance (PMI) payments if you made a down payment of less than 20 percent.
- Property taxes
- Homeowners insurance
Through escrow payments, you can include things like property taxes and homeowners insurance in your monthly mortgage payment. This allows you the convenience of paying each of these at once, rather than having to make three separate payments.
Mortgage refinancing allows you to take advantage of lower interest rates. This essentially means replacing your existing mortgage loan with a new one.
Some homeowners refinance because they want to switch from a fixed rate mortgage to an adjustable rate mortgage. Others do so because rates have dropped significantly since they initially qualified for their loan.
Refinancing essentially means getting a whole new loan, which means you’ll need to pay closing costs to the lender. These costs may be anywhere from three to six percent of the total home value. If interest rates have dropped considerably, this may be well worth it, but it’s important to think carefully about this trade-off.
Closing times can vary according to many factors, including the type of loan you have, the length of the contract, and the complexity of your financial situation. The average closing time is around 40 days.
The vast majority of mortgage companies will require you to have an appraisal, which allows them to verify the value of the home and ensure they’re not lending more than the place is actually worth.
Lenders are less likely to require an inspection, but home inspections are highly recommended protections for buyers.
When you close on your house, you’ll sit down with lawyers and real estate agents to sign some documents. You’ll get the keys to your new home, and officially become the owner! (And you’ll also officially become the owner of a mortgage!)