All Your Big Questions Answered
What can I expect when applying for a mortgage?
After you’ve applied for a mortgage, here’s a few things to expect
- Loan application: you’ll need to fill out a lender’s application online, then talk to a loan officer whether in person or over the phone. This lender will issue you a Loan Estimate (LE) required by the TILA RESPA Rule ( Once you’ve received a LE, you can start looking at pricings, rates, and closing costs.
- Varying closing costs: rates depend on where you live, so your rate could be anywhere from 2% to 6% (trigger term). This rate is on top of any discount points you agree to pay, origination fees, costs for appraisals, surveys, title searches, attorney fees, etc.
- Have your documents available: Be prepared to give out your account statements, tax returns, name, and phone number
Do I need great credit for a mortgage?
Technically no, thanks to the Dodd-Frank Wall Street Reform, but after the crash of 2008, lenders are much more cautious about giving loans to low scores. So if you have a low score, you can still get a loan, but it’s going to cost you a lot more than someone with a good or excellent score. Below is a list of minimum FICO scores by mortgage type:
- FHA Loan – 580+ Credit Score (500-579 possible but unlikely)
- VA Loan – 620+ Credit Score
- USDA Loan – 640+ Credit Score
- FHA 203L Loan – 620+ Credit Score
- Conventional Loan – 620+ Credit Score
Should I choose a fixed rate or an adjustable mortgage
Fixed rate loans have an interest rate that is set when you take out your loan, and it won’t change over time. Whereas an adjustable rate mortgage (AMR) has an interest rate that can change up or down over time. AMRs tend to start at lower interest rates than fixed rate mortgages, however once their introductory period is over, their payments will most likely rise. Fixed rates are recommended if you’re planning on staying in your home long term, and don’t see yourself moving for at least 5 years.
What type of mortgage is best for me?
Here are some of the different mortgage options available as of 2019, explained.
- Fixed Rate: Interest rate will stay the same of the entire length of the
- Adjustable Rate: Interest rate will fluctuate throughout the length of the Will typically change every year.
- Government Issued: Government insured home loans
- FHA – Federal Housing Administration mortgage insurance program, managed by the Department of Housing and Urban Development (HUD). Loans available to all kinds of borrowers, and government insures lender against any losses. Down payments as low as 3.5%, but you’ll have to pay mortgage insurance.
- VA – US Department of Veteran Affairs loan program for military service members and their families. Programs guaranteed by federal government and offer reimbursement to lenders for losses caused by borrower default. Borrowers can receiver 100% financing for the purchase of a home, meaning no down payment whatsoever.
- USDA/RHA – Loan offered by the Department of Agriculture to rural residents who have a steady, low or modest income, and yet to obtain adequate housing through conventional finance. Income can be no higher than 115% of the Area Median Income (AMI) to qualify, which varies by county.
- Conventional Loans: Private lenders, not insured or guaranteed by the federal government
- Conforming Loan: Meets the underwriting Guidelines for Fannie Mae and Freddie Mac where size is concerned. A Conforming Loan falls within their maximum size limits, and “conforms” to other pre-established criteria.
- Jumbo Loan: Exceeds conforming loan limits set by Fannie Mae and Freddie Mac. This type of loan is a higher risk for the lender due to its size, so you must have excellent credit, a large down payment, and high interest rates for this loan.
15 vs. 30 year Mortgage?
A mortgage that will be paid off in 15 years vs. 30 years. A 30 year loan offers lower monthly payments, but more commitment, meaning owing the bank thousands more in interest. 15 year loans offer higher monthly payments, but you’ll pay off your principal faster and have a lot less interest to pay off over time.
What are pre-qualifications and pre-approval?
- Pre-Qualified: You must provide your supplying bank or lender with your overall financial picture, including your debt, income, and assets. The lender will go over everything and give you an estimate on how much you will be able to borrow.
- Pre-Approval: The step after pre-qualification and the definitive word on your ability to borrow. Involves an official mortgage application, pre-approval, and extensive financial background back, and your current credit rating.
What are the financial benefits of owning a house?
Here are seven of the most important financial benefits to buying a house.
- Owning a house will help you build wealth over time
- You’ll build equity every month
- You’ll be able to take advantage of mortgage tax deductions
- You can also get tax deductions on your home equity
- You qualify for Capital Gains exclusion
- A mortgage “forces” you to save money every month (through your equity)
- Long-term, buying is cheaper than renting.
Should I buy a house?
There are a lot of factors to consider before owning your first home. If you answer “No” to any of the following questions, you may need to consider whether you’re financially ready to buy a house or not.
- Do you want to own a home?
- Can you afford a home?
- Do you qualify for a good mortgage rate?
- Have you found a neighborhood you love?
- Would it make more financial sense for you to rent?
- Do you have a stable job?
- Do you have a solid 5-year plan?
- Have you saved enough for a down payment?
- Do you have an emergency fund?
- Is your credit card debt low?
How do I start buying a house?
There’s a lot that goes into buying a house. If you’re looking to start the process, here’s some helpful steps to get the ball rolling.
- Gather your personal info: Preliminary preparations like talking to your bank, making sure you have a down payment, and knowing your credit score help you know if you’re even ready to buy a house.
- Do your research: Look up listings in areas you’d like to live and get a feel for the pricing in that area. Look at houses you think you’d like and check those prices. Figure out what you’re looking for so you know what to expect.
- Get pre-qualified and pre-approved: This will let you know how much you can actually spend. Getting pre-qualified for a mortgage is an easy way to do this.
- Find an adviser, and a good one at that: Having a professional in your corner can make a huge difference, especially if this is your first time buying a house. Odds are, they’ll know more than you will, and they can provide useful insight throughout the process. You can find real estate agents online, but it’s also recommended that you ask trusted family, friends, and acquaintances for recommendations.
- Shop and make an offer. Tour, take notes, take pictures, and ask questions! You have to start looking at houses to buy one, so get out there! Take it seriously, pay attention, and relax a bit, this is the fun part!
Why does it take so long to close a mortgage?
Essentially, your loan needs to pass through a lot of hands before it can be approved. There are many rules, regulations, signatures, underwriters, hoops, and requirements you need to pass through in order to close your mortgage. Yes, it’s a pain, but it’s worth it. So take a breath and be patient, it will get done.