MORTGAGE

FAQ

Mortgages can sometimes be extremely complex and difficult to navigate, especially for first time home buyers. We’ve put together some answers to a variety of the frequently asked questions (FAQs) that we get related to mortgages and refinancing. 

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How do I qualify for a loan?

To qualify for a loan, you need to submit documentation proving your ability to repay the mortgage. For an FHA loan, which has some of the easiest credit requirements, you need to have a FICO credit score of at least 500 in order to qualify for a loan, along with a 10% down payment. Other programs offer a variety of requirements.

Click here for more information on how to qualify.

What is mortgage forbearance?
Mortgage forbearance is a temporary pause on your monthly home loan payments that is granted by the lender in an effort to not require foreclosure.

Click here for more information on mortgage forbearance.

What’s the difference between being prequalified and preapproved?

When you are prequalified for a loan that usually means only your credit score was pulled by the lender. When you are preapproved that means your lender collected all income and asset documentation. There are some additional legal distinctions, but when you are serious about buying a home, it is imperative to get preapproved. Simply being prequalified isn’t enough.

Click here for more info on prequalified vs. preapproved.

How long is a preapproval good for?

On average, a preapproval is good for 60-90 days but will depend on the lender you decide to work with. Additionally, if your financial situation changes in any significant way, you may need to go through the preapproval process again.

Click here for more info on preapprovals.

What are mortgage points and should I pay them?

Paying mortgage points, also known as “buying down the rate,” is the process of paying interest on your home loan up front in exchange for a lower interest rate on the loan. In other words, it is prepaid interest that helps to lower your monthly mortgage payment by decreasing the interest rate on the loan. The question of whether or not you should pay points will be a personal decision and will depend upon your unique situation.

Click here for more info on mortgage discount points.

What are loan limits?

A conforming mortgage limit or a conforming loan limit is simply the maximum amount a loan can be to meet the requirements set forth by government-backed agencies like Fannie Mae and Freddie Mac. In other words, if your loan exceeds these limits, you will not be eligible for common government-backed loans like FHA, conventional mortgages and others.

Click here for more info on loan limits.

What is a mortgage escrow payment and how does it work?

A mortgage escrow is an agreement made with your mortgage lender that has a straightforward, two-fold job: hold money, and make home insurance and tax payments for the homeowner. After the transaction is finalized, and the buyer begins making mortgage payments, the escrow account holds a portion of each payment and uses it to pay property taxes and insurance premiums.

Click here for more info on mortgage escrow payments.

When should I consider refinancing?

When mortgage rates drop below your current rate, that is a good time to explore refinancing. If you’ve checked that box, now it’s time to do a little math. Let’s say your mortgage provider estimates that refinancing will save you $50 a month on your mortgage, but the associated costs to refinance is $2,000. That means it will take over three years for you to recoup the costs of refinancing. If you plan to be in the house for well beyond that, then refinancing makes financial sense. But if you plan to move before that break-even point, it probably isn’t a good time to refinance.

Click here for more info to help you determine if you should refinance your mortgage.

What is private mortgage insurance (PMI)?

Private mortgage insurance (PMI) is insurance that offers coverage to your mortgage lender should you default on your mortgage payments. It’s often used in order to provide mortgages to home buyers bringing a lower down payment and don’t have enough cash on hand for a 20% down payment. PMI helps lenders reduce the risk of lending money to someone who may not be able to make their mortgage payments.

Click here for more info on private mortgage insurance.

Can I get my earnest money deposit back?

When it comes to getting your earnest money deposit back, it all depends on the agreement you created. There are a variety of scenarios to consider and in some situations you can get the money back but it depends on how the deposit is incorporated into the offer.

Click here for more info on earnest money deposits.

Can I get a mortgage without a credit score?

Yes, it’s possible, but it’s more difficult. The vast majority of lenders require a credit score. However, it is possible to find lenders that provide loans to people without a credit score. However, you most likely have a credit score even if you have very little credit history or haven’t assumed any debt in a few years.

How much home can I afford?

That depends on your own personal financial situation, of course, but many people find it useful to follow the 28/36% rule. This means your mortgage payments should not exceed 28% of your gross monthly income, and a combination of your mortgage and all other debt payments shouldn’t be more than 36%. These are just guidelines, however, and you have to choose numbers that work for you and your family.

Read more about home affordability here.

How do I know which home mortgage is right for me?

There are two factors in selecting the right home mortgage for you:

  • The amount you want to pay each month
  • How soon you want to pay off the mortgage

You should choose a mortgage that allows you to afford the payments as well as help you pay off the mortgage when you want. This may involve getting mortgage with a shorter payback time or just paying a little extra each month to reduce the payoff period.

How do interest rates affect my mortgage?

Generally speaking, the higher the interest rate, the higher your mortgage. Also, if the Federal Reserve’s base interest rate goes up, home mortgage interest rates will follow. The increase is due to the fact that banks often borrow according to this rate, so to maintain profitability, they have to increase their rates as well.

How do I lock my interest rate?

Locking your interest rate is as simple as finding a rate you’re happy with and then telling your mortgage broker you want to lock it in. To find the best rate, a good rule of thumb is to watch bond prices and other financial news. Higher fixed-rate bond prices usually mean lower interest rates. And a stronger economy makes it more likely for interest rates to rise.

What does my mortgage payment include?

Your payment includes the principle, interest, taxes, and home insurance premiums. Some homeowners also choose to finance some or all of the closing costs.

What happens after I get preapproved for a home mortgage loan?

After you get pre-approved, you find a home you love and make an offer. When the sale price has been agreed upon, you submit documentation that is used to get you full approval. Pre-approval is essentially saying, “This is how much it looks like you can afford. We’ll verify that during the full approval process.”

How long does it take to close on a house?

It can take 30 days or less to close on a home. Several factors could make the closing period longer including missing or incomplete financial documents, issues discovered during the home inspection, and the home’s value coming up too low in an assessment.

What happens at closing?

At closing, you review and sign the closing documents, provide proof of homeowner’s insurance if necessary, deliver the down payment via certified check or wire transfer, the funds to pay for your home are given to the closing agent, any necessary escrow services are set up so taxes and insurance can be included in your monthly payment, and you get the keys to your new home.

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