Frequently Asked Questions

Learning about your different mortgage options before you meet with a lender can help you get the best deal on a house that will benefit your family for years to come.

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Here are some common mortgage questions you may have during the home-buying or refinancing process.

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1. How do you qualify for a loan?

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The idea of meeting with a lender can be intimidating, especially if you’re buying your first home. After all, this is probably the biggest purchase you’ll ever make!

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Take a deep breath and relax—you don’t have to be stressed. Think of your first meeting with a lender as a get-to-know-you session. They’ll simply want to learn a few basics about you and your financial situation.

Then comes the paperwork! Once your loan process gets started, be prepared to provide proof of:

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• Where you work

• Your income

• Any debt you have

• Your assets

• How much you plan to put down on your home

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2. How much should you save for a down payment?

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It depends on the loan program, but putting 20% down is ideal because you won’t have to pay private mortgage insurance (PMI). PMI is an extra cost added to your monthly payment that doesn’t go toward paying off your mortgage.

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3. How do you know which home mortgage option is right for you?

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With so many mortgage options out there, it can be hard to know how each would impact you in the long run. Here are the most common mortgage loan types:

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• Adjustable-Rate Mortgage (ARM)

• Federal Housing Administration (FHA) Loan

• Department of Veterans Affairs (VA) Loan

• Fixed-Rate Conventional Loan

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4. How do interest rates affect your mortgage?

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High interest rates bring higher monthly payments and increase the overall interest you’ll pay over the life of your loan. A low interest rate saves you money in both the short and long term.

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Of course, just like you can’t time the stock market, it’s nearly impossible to time your home purchase with the best interest rates. The past five years have held some of the most affordable interest rates ever, according to the Federal Home Loan Mortgage Corporation, and their recent forecast predicts the trend will continue.

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It may be hard to time your home purchase with the best interest rates, but there are things you can do to get a lower rate. For example, a benefit of the 15-year, fixed mortgage is that it has a lower interest rate than a 30-year, fixed mortgage. Sometimes a bigger down payment can also help you get a better interest rate.

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The money you pay in interest doesn’t ever go toward paying off the principal balance of your home. That’s why it’s a smart move to get a low interest rate on your mortgage and then pay off your house as quickly as you can.

 

5. How do you lock your interest rate?

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Because mortgage interest rates can change day to day, locking your rate is an important part of the mortgage process. Locking your interest rate guarantees a certain interest rate for a specific period of time, usually between 30 to 45 days.

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You can lock your interest rate once we received all documents pertaining to the loan program. 

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Like we said earlier, mortgage interest rates go up and down and there’s no way to time it perfectly. You simply don’t know what the future holds. No one does. So don’t spend time trying to time the market; instead, rely on your lender’s expertise. If they say it’s a good time to lock down your rate, trust them.

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Some lenders charge a fee to lock your interest rate. Ask questions on the front end so you know what to expect.

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6. What are mortgage points?

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Mortgage points, or discount points, are a way to prepay interest to get a lower interest rate on your mortgage.

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7. What does your mortgage payment include?

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So what happens when you send in that mortgage payment every month? It’s nice to think the whole amount just reduces your principal, but your monthly payment actually goes toward a lot more.

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Here’s what the typical monthly mortgage payment includes:

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• Principal

• Interest

• Homeowners insurance (if escrowed)

• Property taxes (if escrowed)

• Private mortgage insurance (PMI), if you put down less than 20% on your home

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If you want to pay more on your mortgage, be sure to specify that you want any extra money to go toward the principal only, not an advance payment that prepays interest.

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8. What is an escrow account, and how does it work?

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Your mortgage payment may include additional costs like your homeowner’s insurance and property taxes. These are annual expenses that are part of homeownership, and the lender is at risk if you don’t make those payments.

Your lender can add the monthly portion of each of those accounts to your mortgage payment. That money is held in an escrow account that is managed by a third party to make sure those costs are paid on time.

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9. When should I consider refinancing?

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You should think about refinancing if:

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1. You can lower your interest rate enough to justify the closing costs.

2. You can refinance from an adjustable-rate mortgage to a fixed-rate mortgage.

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On a $245,000 mortgage for a 30 year term, lowering your interest rate from 6% to 4% could save you about $245 a month. Over the course of eight years, that adds up to more than $23,500. If closing costs to refinance a $245,000 loan cost an average of $3,500. Is it worth it to pay $3,500 in closing costs to save $23,500 over the long term?

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When it comes to adjustable-rate mortgages, refinancing to a fixed-rate mortgage is almost always a good idea. An adjustable-rate mortgage can go up and down, drastically changing your monthly payment. Most often, a fixed-rate mortgage is your best option, even if you have to write a check for the closing costs.

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10. What happens after you get prequalified for a home mortgage loan?

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Getting prequalified for a mortgage is just the beginning. Once the financial pieces are in place, it’s time to find your perfect home! While it’s one of the most exciting stages of the process, it can also be the most stressful. That’s why it’s important to partner with a buyer’s agent.

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A buyer’s agent can guide you through the process of finding a home, negotiating the contract, and closing on your new place. The best part? Working with a buyer’s agent doesn’t cost you a thing! That’s because, in most cases, the seller pays the agent’s commission.

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Why not partner with a real estate pro who can save you time, stress and money on your home purchase? We can connect you with a agent in your area who’s earned our seal of trust.

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11. How long does it take to close on a loan?

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The average time to close on a loan is currently around 30 – 45 days. Factors such as your loan type, your financial situation, and the length of your contract can either lengthen or shorten that time frame.

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If you have questions, please contact us.