Mortgage FAQs

Answers to your common mortgage questions.

How much can I afford when buying a home?

That depends on your personal situation, but many people find it useful to follow the 28/36% rule. In this scenario you mortgage payments should not exceed 28% of your gross monthly income. In addition, your mortgage and all other debts shouldn’t be more than 36% of your income. These are simply guidelines, and you have to choose numbers that work for you and your family.

What is a prequalification vs. a preapproval?

A prequalification usually just means that your credit score was pulled. A preapproval is a more comprehensive verficiation that you are capable of paying back a long. With a preapproval your lender collected all income and asset documentation to help them understand what you can and cannot afford. If you’re serious about buying a house, you need to get your preapproval ASAP.

What is included in my mortgage payment?

Your monthly mortgage payment includes assets allocated to the principle of the laon, loan interest, taxes, and home insurance premiums. In some cases, home buyers can also choose to finance some or all of their closing costs into the loan.

How can I qualify for a mortgage loan?

Everyone’s situation is different and will depend upon the mortgage program you choose. The basic idea is that in order to qualify for a loan, you need to submit documentation proving your ability to repay the mortgage. For an FHA loan, your credit score needs to meet the current FICO credit score requirements in order to qualify (in addition to other requirements). Loans requirements vary depending on the loan.

What is private mortgage insurance, aka PMI?

This is the insurance that offers your mortgage lender protection. That would be in the case that you stop paying your monthly premium. Also, often times it’s used to give homebuyers a lower down payment. For example, for those homebuyers with not enough cash on hand to put 20% down. PMI reduces the lenders risk of giving money to a person who possibly doesn’t have the ability to make necessary mortgage payments.

When should I consider refinancing my mortgage?

Consider refinancing when current rates drop below yours. That is the best time to look into refinancing. Next, you have to do some math to see if it’s worth it for you. For example, let’s say your lender lets you know that your savings will be $75 a month but your refinance cost will be $2,500. Knowing this, it will take over 3 years to break even on that refinance cost. That being said, you should not refinance If you plan to move before the break-even point.

Do I have to put my spouse on my mortgage?

The short answer is no. Not even if you are a married couple buying a home together. Also, this goes for refinances. In some situations, it’s better to only have one person on the mortgage. For example, your partner may have a very low credit which could hurt your chances of having a good interest rate. It could even hurt your overall buying power. Make a decision that is best long-term.

What is mortgage escrow?

In an escrow account, funds are managed by a third party. This is until a transaction is completed. It could also be until an agreed-upon contract is fulfilled. You will typically need an escrow account if you are putting less than 20% down on a home.

When does my mortgage payment change?

The change will happen over the entire life of the loan period. Your payment can change even if you have a 15 or 30-year fixed mortgage. You’re probably wondering what the reason could be for this. The main reason is fluctuations in your insurance and taxes. These are often paid by an escrow account that has been set up by your lender.

How does my credit score impact my mortgage?

Your credit score does impact your mortgage. Not only that but also your loan to value ratio, private mortgage insurance, leniency from lenders, your loan eligibility.

Can I refinance to pay for home improvements?

Many people complete refinances in order to afford home improvements they dream of. How this is done is a particular process. The way the process works will depend upon your needs and financial situation. The main refinance method for home improvements is a cash-out refinance.

How much home can I afford?

Your financial situation is a huge determining factor in how much you can afford. It is a rule of thumb to follow the 28/36% rule. Meaning that your monthly payment should not be more than 28% of your monthly income. Also, that your debt payments need to stay under 37%. These are easy numbers to follow but it’s ok to use percentages that make sense for your situation

How do I know which mortgage is right for me?

Two factors should be considered when selecting a mortgage. First, think about the amount you are comfortable with paying each month. Second, ask yourself when you want your mortgage to be completely paid off. Sometimes getting the right mortgage for your situation can mean a shorter payback period. It all depends on your level of comfort and financial situation.

How do interest rates affect my mortgage?

The higher the rate the higher the mortgage payoff amount. Remember, home interest rates will go up if the federal reserve raises their base rates. Rate increases happen because banks borrow in conjunction with these base rates. Therefore, the federal reserve must increase rates to remain profitable.

What is the difference between a HELOC and a Home Equity Loan?

A home equity loan is essentially another name for a cash-out refinance. Where you refinance your mortgage based on the equity you have built on your home. On the other hand, a HELOC is a home equity line of credit. It is like a credit card based the equity you have built.

What are loan limits?

A loan limit is the maximum amount of money that can be loaned out based on the requirements set by Freddie Mac and Fannie Mae. These two companies are government-backed agencies. That being said, you will not be eligible for government-backed mortgages if your loan goes beyond these limits. Some loan examples include conventional, FHA, and others.

What are mortgage points?

Buying mortgage points mean that you are “buying down the interest rate.” Essentially, you are paying interest up front in order to receive a lower rate. Consider it prepaid interest that allows for a lower monthly mortgage payment. You may be asking yourself whether or not you should consider buying points. That is a personal decision that should be made with careful consideration of your situation.

How long is my preapproval valid for?

The average preapproval is valid for 60-90 days. Remember, the duration all depends on the lender you are working with. Also, you may need to get preapproved again sooner. For example, you may have an impactful change in terms of your financial situation that could get you a stronger preapproval. In this case, you would want to get a new preapproval.

How does my credit score impact my interest rate?

Know this – your credit score is your most impactful pieces that shows your repayment ability. It displays your record of being able to pay debt on time. Think about it, you wouldn’t want a loan a friend money who has a record of not paying people back, right? Lenders treat your mortgage the same way.

What’s the difference between a mortgage broker and a bank lender?

A broker is like the middleman between you and the lender. They are able to shop for different mortgages on your behalf. Think of a broker like your helpful advocate that is trying to get you the best mortgage for your needs. On the other hand, a bank is as clear-cut as it sounds. It’s simply another financial institution that can offer home loans.

Which mortgage loan is right for me?

There are six general types of mortgage loans. The right one should be advised for your needs and budget. Things to consider include your financial situation, qualifications, and preferences. Your loan officer should properly advise you on the best option for your situation. It’s important to understand what makes all the loans different and whether or not they are right for you.

What is mortgage forbearance?

Consider it a temporary relief from your monthly mortgage payments. For example, you may be close to facing foreclosure. In this case, a lender may grant you forbearance to avoid such measures. There are other situations in which a forbearance is an option for you. Some examples include being late on payments, divorce, job loss, disability, unfortunate accident, etc.

Can I pay off my debt with a cash-out refinance?

The short answer is, yes! First, you have to be eligible for a mortgage refinance. Also, you must have built up enough equity in your home to do so. Then, you have a chance at going thru a cash-out refinance. You can then use those extra funds to pay off the debt in mind. You will have a lower interest rate but be aware that your mortgage payment may go up.

How do I lock in an interest rate?

You can ask your mortgage broker to do so as soon as you find a rate you are comfortable with. A tip is to watch bond prices and financial news as a way to gauge which way rates are going. For example, if you see higher fixed-rate bond prices then you should see lower interest rates. Also, your can expect rates to rise if the economy is strong.

What is included in my mortgage payment?

Principal, interest, taxes, and home insurance will be included in your mortgage payment. You may also choose to finance all or a portion of your total closing costs.

Do I still need to pay property tax once my house is paid off?

The answer is yes. Also, you will need to pay homeowners insurance directly. Remember that your escrow account has an impact on your payments. Continue to allocate cash towards home insurance and property tax.

I’m preapproved – what now?

Now it’s time to find the home of your dreams and put down a solid offer. You will start the process to be fully approved once you and the seller have agreed on a price. Your lender will ask you for the necessary documentation at that point. Your preapproval let’s sellers know how much you can afford in a home.

How long does it take to close on a home?

Overall, it can take 30 days or less. There are many situations where the closing period runs longer than that. Some factors can include incomplete documents, problems during inspection, invalid appraisal and more. Sometimes it’s simply a matter of additional occupancy that was given to the seller.

What happens at closing time?

All closing documents are reviewed and signed by the proper parties. Sometimes, proof of homeowners insurance is requested. Also, the down payment will be delivered via whatever method was agreed upon. In addition, any escrow services will be set up. Finally, you will receive the keys to your new home.

I have no credit score – can I get a mortgage?

While it is possible, it is very difficult. Most lenders do require a person to have a credit score. On the other hand, it is a possibility to find a lender that will provide a loan with no credit score. This is another reason it is better to work with a broker who can shop lenders for your specific situation.