As Realtors, we often have clients ask us questions about home financing. If you are thinking about buying a home, you probably have a lot of questions. We’ve compiled this list of frequently asked mortgage questions to give you a better understanding of the loan process.
Do I need perfect credit to qualify for a mortgage?
The simple answer is no, you do not need great credit to get a mortgage but having a better credit score does have its advantages when applying for a home loan including a lower interest rate. However, if you have less than perfect credit, there are mortgage programs available, including VA loans for Veterans and FHA mortgages for first-time home buyers.
Will my spouse’s credit score matter?
It will matter if you want to count both of your incomes when applying. If your spouse is unemployed or has bad credit, you may want to apply for a home loan on your own. Just keep in mind that when applying alone only your income and assets will be factored into the qualifying process.
What will my mortgage rate be?
This one depends on many factors, including your credit score, home location, down payment, loan term, and current interest rates. Different loan types also have rates that can fluctuate between products.
How much home can I afford?
This is one of the most commonly asked questions. And the answer, it depends. A mortgage lender will determine your maximum home purchase using several factors including current interest rates, your down payment, and your debt-to-income(DTI) ratio. Most conventional loans have a maximum DTI of 45% while FHA, VA, and USDA mortgage loans have a DTI near 45%.
How long is the pre-approval good for?
A pre-approval on a mortgage loan is usually good for a limited time, typically between 45 and 90 days. Your pre-approval is preliminary but can be updated with re-verification.
How much do I need for a down payment?
The down payment represents the percentage you can pay up front when you close on a mortgage. A typical down payment of 20% will help earn you a better interest rate, but you can close on a home loan with as little as 3% and 3.5% for FHA loans. If your down payment is less than 20%, your lender may require you to pay private mortgage insurance. VA loans are also available at ZERO down payment for Veterans, Service Members and select military spouses.
What type of mortgage should I get?
You can choose between a fixed-rate mortgage or an adjustable-rate mortgage. A fixed-rate means your monthly payments will remain the same for the term of your loan because your interest rate does not change. With an adjustable-rate, your payment will fluctuate depending on current rates. ARMs usually feature a lower rate to begin with and can help you qualify for a higher sales price, however the rates and payments can significantly rise over the life of the loan. You can also choose the length of your loan between 15, 20 and 30 years. The longer the period, the lower your monthly payments but the more interest you will pay on the life of the loan, and usually at a higher rate.
What are closing costs and how much will they be?
Closing costs include fees for the loan like the home appraisal, loan origination fees, discount points, title insurance, survey, taxes and recording fees. You can expect to pay anywhere from 2 to 5 percent of the purchase price of your home in closing costs.
Can I apply for a home loan if I’m self-employed?
Most lenders will want to see at least two years of self-employment income in the same industry which can make it more challenging than someone who receives W2 income. You will also need to be prepared to show documentation for income especially if you have multiple sources.
Do I need to get pre-qualified for a mortgage?
A pre-qualification is essential when searching for a home and submitting an offer. A pre-qualification letter will be submitted by your Realtor with all offers. It lets the seller know that a lender has looked over preliminary information and believes you are a good candidate for a home loan. If you are interested in talking with one of our preferred lenders, simply fill out our contact form below.