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Top 12 Mortgage Questions

Top 12 Mortgage Questions in Aug 2021

When looking for a mortgage lender, it is critical to conduct research and ask questions. Not all lenders are the same, and it is critical to understand as much as possible before proceeding with the house loan process.

Lynn Greenspan
Last updated: Aug 12, 2021 | Aug 11, 2021

Table of Contents

When looking for a mortgage lender, it is critical to conduct research and ask questions. Not all lenders are the same, and it is critical to understand as much as possible before proceeding with the house loan process. 

Whether you're buying a house or refinancing, the first step should be to compile a list of mortgage questions to ask before making a choice. Here are the top 20 most critical questions to comprehend, as well as specific questions to ask your mortgage lender.

Common Mortgage Questions

Before meeting with a lender, there are steps you can do to become more knowledgeable about your alternatives and the general mortgage process. 

Here are some frequently asked mortgage questions that you may research on your own to obtain a better understanding before meeting with a lender. 

How Does a Mortgage Work? 

A mortgage is a loan for the purchase of a home. A mortgage would be used to purchase a property. 

You can also refinance the home to get better conditions for your circumstances or convert the present home worth into cash. 

When you acquire a mortgage, you must sign two pieces of paperwork. The first is a promissory note, which details the repayment process and sets your monthly payment as well as the term duration. It is your pledge to repay the debt. 

You must also sign the mortgage, which contains these financial facts as well as the lender's recourse if you fail to make your payments, spelling out precise processes and penalties. 

In most cases, a lender will be able to repossess your home if you fall behind on your payments. When you pay off your mortgage, the lien on your property that permits them to do so is erased.

What Kinds of Loans Are There? 

Mortgage loans are also available in a variety of flavors. One of the most important things to understand is whether the rate is set or adjustable, meaning it will fluctuate over time. 

Loans are also available in a range of term lengths. The lower your monthly payment, the longer the duration. What is the trade-off? You will pay more interest than on a shorter-term loan. 

Another factor to consider is the investor in your home loan. Conventional loans have somewhat stricter credit requirements than FHA loans, but with a large enough down payment, you can eliminate mortgage insurance entirely. Meanwhile, FHA loans require a somewhat lower credit score than many other choices. 

USDA and VA loans are two distinct programs. Both provide the possibility of obtaining a house loan with no down payment. 

USDA loans are intended to promote development in rural regions or on the fringes of suburban areas. 

VA loans are a benefit available to qualified active-duty servicemembers, reservists, veterans, and surviving spouses of those killed in action or who died as a consequence of a service-connected disability. 

For those that qualify, the VA loan also has among of the lowest interest rates of any lending choice.

How Do I Qualify For One?

Mortgage lenders will consider numerous criteria when determining your eligibility for a loan, including your income, property, assets, and credit (IPAC). 

Your credit report is obtained in order to examine your credit score as well as your current obligations. For qualifying purposes, lenders look at the lowest median credit score of all borrowers on the loan. 

  • If you're looking to buy, decrease your rate, or modify your term with FHA, that score is 580.
  • Most conventional loans need a minimum credit score of 620.
  • Lenders determine their own VA policies; with Rocket Mortgage, you must have at least a 620 credit score.
  • Rocket Mortgage USDA loans demand a credit score of 640.

Aside from credit, income is highly significant since it is compared to your previous obligations to determine your debt-to-income ratio (DTI). 

To qualify for the most loan choices, limit your DTI to no more than 45 percent, including your house payment. 

Finally, the lender will examine your real estate and assets. 

In the property section, an appraiser must ensure that the home is move-in ready, safe to live in, and give value to the property. 

The lender will also examine your assets to ensure that you have enough money for a down payment.

Depending on the investor in your mortgage and the loan purpose (e.g., is this for a primary, vacation, or rental home), you may be required to have reserves - funds for a specific number of months of mortgage payments in the event of a loss of income.

What Is the Difference Between Being Prequalified and Being Preapproved?

Lenders frequently use the phrases prequalified and preapproved interchangeably, but they can imply quite different things, so you should be cautious. 

A lender may or may not pull your credit during a routine prequalification to determine what loans you qualify for. If they conduct a credit draw, they will see your median FICO® score as well as any current liens on your credit. 

If they do not check credit, it is critical to be as forthcoming as possible with the lender regarding your credit score and any current monthly installment and revolving debt payments. 

In addition, the lender will want verbal or written estimations of your assets and income. They can then offer you an estimate of how much you can pay, but it's really just a best guess.

A lender will pull your credit as part of a legitimate preapproval. They will also want evidence such as bank accounts, wage stubs, and W-2s to determine the upper limit of your budget based on an estimated interest rate. 

Sellers and their representatives are considerably more at ease with this greater type of permission.

How Much House I Can Afford?

How Much House I Can Afford? 

While being prequalified or receiving a confirmed mortgage approval will assist you in defining the higher end of your budget, it does not mean that you should immediately begin looking at properties at the upper end of your price range. 

You don't want to wind up paying so much on your mortgage payment each month that you can't save for any unexpected expenses. 

You should also make a place in your budget for whatever brings you joy. If you enjoy going out to dinner with friends once a week, you should be able to do so.

You may, of course, utilize your mortgage approval as a starting point, but don't stop there. Before you hit the road to look at houses, you should take a close look at your budget to figure out what kind of house payment you can afford. 

Keep in mind that your house payment includes more than just the mortgage (we'll break down the components of a house payment later), and you'll also want to save between 1% and 2% of the purchase price for maintenance expenditures. 

If you're searching for a general rule, it's best to spend no more than 33 percent of your monthly budget on housing expenditures. Any more than that, and you risk overstretching yourself.

How Much Should I Save for a Down Payment? 

There are two parts to this puzzle. There's what you're obliged to save, and then there's the optimum down payment for you based on your circumstances. 

  • There is no down payment necessary if you qualify for a USDA or VA loan.
  • When applying for an FHA loan, the minimum down payment is 3.5 percent.
  • If you qualify for a conventional loan via Fannie Mae or Freddie Mac, down payments start at 3% and you will never have to put down more than 5% of the purchase price for a primary property.

However, there are several advantages to make a larger down payment if you are able to do so. 

If you put down 20% on a traditional loan, you can avoid paying for private mortgage insurance (PMI). Otherwise, you can request that it be canceled after you achieve 20% equity. 

If you make a down payment of less than 10% on an FHA loan, you will be required to pay mortgage insurance premiums (MIP) for the life of the loan. Otherwise, it will fall off after 11 years.

Because your interest rate is decided in part by a combination of your median FICO® score and the size of your down payment, a larger down payment should result in a lower rate if all other circumstances remain constant.

Given this, the true answer to this issue is that you should deposit as much as you can reasonably afford while not jeopardizing other financial goals.

Just bear in mind that you'll most likely need to furnish the place as well.

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Mortgage Questions to Ask Your Lender

You've scheduled your first meeting with your lender, but you're not sure where to begin.

You can ask any of the basic mortgage questions listed above, but there are also some more particular questions to consider. Knowing what questions to ask can assist you in selecting the best lender.

What Kinds of Home Loans Do You Offer?

Now that you've learned about the many sorts of loans accessible to you, it's time to choose a lender that can match you with the best choice for you. Begin by asking your lender what kind of loans they provide. 

Everyone provides fixed-rate mortgages and adjustable-rate mortgages (ARMs), but what are the fixed-rate periods on the ARMs? This is crucial to understand because if you know you'll be moving out within a few years, you may potentially save some money before the interest rate increases. 

You may also acquire a traditional fixed loan with periods ranging from 8 to 30 years, but does the lender provide all of these options?

Is it possible to get an FHA, USDA, or VA loan?

Is there any special financing available for condominiums through the lender?

The more alternatives a lender provides, the more likely you are to discover one that best meets your specific needs as an individual.

Which Type Of Mortgage Is Best For Me?

When speaking with a lender, make sure to provide as much data as possible about your circumstances and answer any questions they may have. 

If they propose a specific loan choice for you, have them put it in writing so you can grasp the differences and be educated on the pros and cons of each scenario. This is an excellent opportunity to inquire about alternatives. 

Never be scared to inquire as to why. If you don't understand a charge or expense, ask them to explain it to you. 

Move forward if you feel confident that they seem to know what they're talking about and have your best interests in mind. Otherwise, you are free to go somewhere else.

What Will My Interest Rate And Annual Percentage Rate Be? 

There are two interest rates that lenders will promote when they advertise interest rates. The first is the interest rate you are paying on your mortgage.

The annual percentage rate is the second interest rate (APR). The APR is greater since it includes the basic interest rate as well as the loan's closing expenses.

One thing to keep in mind is that the greater the gap between the basic interest rate and the APR, the more fees the lenders charge.

Your lender should also be able to explain the elements that contribute to the determination of your interest rate.

What Is The Loan Estimate?

What Is The Loan Estimate?

A loan estimate provides a detailed analysis of all of the costs connected with your loan, including any closing fees. 

Lenders are obligated by law to provide you with this estimate within three business days of receiving your completed application. 

If there is a change to your loan that will have a substantial impact on your mortgage expenses, they must provide you a new loan estimate. You will also get a closing disclosure three business days before your mortgage closes. 

Although your actual mortgage expenses can only vary a little from what was stated on your first lending estimate, third-party fees for items like title insurance, surveys, and appraisals can vary by up to 10%. 

Your loan estimate will contain the main parameters of the mortgage as well as any loan fees. 

If there is anything you don't understand, don't be hesitant to ask your lender. Here's a more in-depth analysis of the loan estimate.

Do You Handle Underwriting In-House?

Underwriting is the process of validating all of the information you submitted and determining whether or not you are eligible for the loan. 

It is critical that you understand whether the lender will handle the underwriting and what to expect during the procedure. 

What Is Your Average Loan Processing Time?

Inquire with the lender about the usual loan processing time.

Rocket Mortgage strives to complete purchase loans in 30 days or fewer.

Refinances are typically completed faster since an appraisal is not usually necessary and there is no house inspection.

Processing time is especially essential in a purchase situation since sellers will be searching for someone who can get their financing sorted out quickly so that they may move on to the next stage of their lives.

Lynn Greenspan | Lynn Greenspan, a 15-year business expert, is a customer service enthusiast. Lynn made a name for herself as a residential mortgage originator, closing up to $100 million in loans per year. Lynn was a top producer for two national mortgage firms, established and sold her own company to a regional bank, and worked as a valued mortgage adviser throughout her career. Lynn has successfully managed numerous companies, including healthcare ventures, and has served on local boards in addition to her mortgage career. Lynn Greenspan is a regular lecturer on this subject for financial institutions, mortgage companies, food service organizations, and a variety of other industries. She's also the author of Get a Safe Mortgage Loan And Pay It Off In 3 Years.

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