FAQS
What is pre-approval and do I need it?
Pre-approval is the process of getting a loan commitment from
your mortgage company before you have found a home. The mortgage
company will look at your credit and finances to pre-approve
you. While you do not need a pre-approval letter it shows sellers
that you’re a qualified buyer and it will give you one step
up when you put an offer on a home.
What is the difference between a fixed-rate mortgage and
an adjustable-rate mortgage?
A fixed-rate mortgage is a loan in which the interest rate never
changes and your payments remain stable throughout the life
of your loan. An adjustable-rate mortgage (ARM) is a loan in
which the interest rate changes at regular intervals, usually
once every year, which is based on the current interest rate.
For most ARMs rate adjustments begin after an initial period,
usually between three months and five years, during which the
rate is fixed. A fixed rate is usually best if you plan to stay
in your home for the long term and are buying at a time when
rates are relatively low. An ARM is usually best if you plan
to move before the rate adjustments begin, or if you are buying
when rates are relatively high.
What are points?
Also called discount points, a point is 1% of the amount of
the loan. Points are a one-time fee added to your closing costs
and generally results in a slightly lower interest rate on your
loan.
What is a prepayment penalty and should I have one?
A prepayment penalty allows the lender to charge the borrower
a fee if they close their loan within a certain period, usually
the first five years of the loan. This fee is usually equal
to about six months worth of interest payments on a loan. In
some cases you may be able to get a lower rate if the lender
includes a prepayment penalty, but it is usually better to try
and avoid it.
Should I lock my rate?
When you lock your interest rate your lender will guarantee
that rate for a determine amount of time, no matter what the
market does. Usually lenders will lock a rate for 30 to 60 days.
If interest rates rise within that period of your lower interest
rate is safe, and that is what you will pay on your loan. Talking
with your mortgage lender will give you a better idea of whether
you should lock your rate. They will usually keep up with current
events and know whether the interest rate is planning to rise
or fall.
What will a lender look at when I apply for a mortgage?
Lenders consider many factors in evaluating your loan application.
Lenders will look at your income and debt to determine how much
money you can put towards a mortgage payment each month. They
will look at your credit score to see if you have been financial
responsible in the past. They will also look at the property
you are planning to buy to see if it is worth the amount of
money you are planning to pay for it.
What if I have bad credit?
Your credit history is only one factor that a lender will look
at. While someone with good credit will have more options available
to them it doesn't’t mean someone with bad credit cannot qualify
for a loan. In fact, there are several mortgage programs specifically
designed for people with bad credit.
How much are closing costs?
Closing costs will vary based on several factors including the
lender, the type of mortgage, the purchase contract, and the
state you live in. Your lender will charge fees for appraisal
and credit reports. If you are paying for points, those will
also be charged at closing. There are also fees for title insurance
and hazard insurance and deposits for an escrow account. A lender
can give you the approximate closing costs of your mortgage
with a quote so that you can compare lenders.
What types of problems generally cause closing delays?
Closing delays are commonly related to a failure to satisfy
loan conditions or a buyer's delay in setting up their homeowner's
insurance. The most common loan condition that will cause a
delay is a borrower’s lack of documentation regarding the source
of funds for the down payment and closing costs.
What is mortgage insurance and am I required to have it?
Mortgage insurance is paid for by the borrower and is designed
to protect the lender against payment default. In most cases
if the loan is being taken out for more than eighty percent
of a property the lender will require mortgage insurance.
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