Frequently Asked Questions

Analyzing your financials, your mortgage lender will provide you with the potential cost of your monthly payments and break down the expenses involved. You’ll learn about your interest rate, closing costs and property taxes, as well as additional fees that are factored into your payments. Your mortgage lender will help you figure out how much of a down payment you’ll need.

Buying a home without your spouse is possible, but it’s not as easy as applying for a loan and leaving your partner off the paperwork. If you live in a state with a community property statute, you must share ownership of any assets you gain during your marriage with your spouse. If you live in a common-law state, you can leave your partner’s finances off the paperwork when you buy a home.

Mortgage insurance is typically required for most loans with a down payment of less than 20%. The type of insurance varies by loan, and how much you pay can vary by lender. PMI, for example, can cost 0.5% - 1% annually.

After you start paying off your mortgage, you may find that you have more access to funds than you initially thought and are able to pay off your mortgage early. This option can save you thousands of dollars in interest. Which is why you should ask your lender ahead of time. If they do allow you to pay off your loan faster, you should ask whether there are any prepayment penalties. Mortgage lenders often charge these fees to dissuade borrowers from making extra payments on their loans, refinancing their loans at a lower rate or selling their home before the loan is due. Prepayment penalties enable mortgage lenders to recoup some of the money that they would have made off your loan had you continued to make monthly payments through the end of your loan term.

There are different types of prepayment penalties: soft and hard. Let’s break them down:

Soft prepayment penalty: Borrowers can sell their homes without being penalized, but are charged if they refinance or pay off the mortgage in one lump sum.

Hard prepayment penalty: Borrowers are required to pay fees regardless of whether they sell their home, refinance it or make a large payment to pay it off.

If your mortgage lender charges prepayment penalties,  ask how much they cost. How prepayment penalties are charged varies among lenders. They can be very expensive and can make early payoffs costly.

A mortgage lender works for a bank or financial institution to determine the qualification of borrowers and provide them with funds. However, a mortgage broker works with borrowers to help them shop around and find the appropriate lender for their circumstances.

Instead of researching different types of loans and lenders independently, mortgage brokers do the work for you. After they find the right loan and lender for your financial situation, they help you gather the information you need to fill out your mortgage application.

Closing costs are processing fees you pay to your lender to close out your loan. Some typical closing costs include appraisal fees, origination fees, attorney fees and title insurance.

The specific closing costs you’ll pay depend on where you live, your down payment and the size of your property. Closing costs will usually run 3 – 6% of the total value of your loan.

The often-quoted 20% figure has to do with avoiding private mortgage insurance (PMI), which protects your lender in the instance that you default on your loan. You can cancel your PMI on a conventional loan as soon as you build 20% equity in your home, and your lender will automatically cancel PMI as soon as you reach 22% equity in your home.

In some cases, you can buy a home with as little as 3% down. Certain types of government-backed loans even allow you to get a mortgage with 0% down.

Preapproval and prequalification are two processes that are often confused with each other.

Let’s break each down:

Prequalification: During a prequalification, a lender asks you questions about your income, credit score and assets to give you an estimate of how large of a loan you can get. However, they don’t verify any of this information, which means that the number you get during prequalification can easily change if you report incorrect information.

Preapproval: During a preapproval, your lender verifies your income, assets and credit information by requesting official documents, including your W-2s, bank statements and tax returns. This allows your lender to give you an accurate mortgage loan figure.

A mortgage rate lock is an agreement between you and your lender that says your interest rate will stay the same until closing, regardless of market movements. Rate locks are important because they keep your loan costs predictable. When you get a rate lock, you don’t have to stress about finding a home immediately, because you know that your interest rate won’t increase.

Ask your lender about rate locks and how long they’re valid. Also, find out about current market rates (are they high or low?) and whether you should lock your rate. Some lenders will drop your interest rate if market rates decrease after you lock your rate, so be sure to check with your mortgage lender. 

The higher your credit score, the easier it is to get a mortgage loan. However, you can still buy a home if you have bad credit – you just may have to pay more for your loan.

Each lender sets its own standards for what they consider an acceptable credit score. That’s why it’s vital that you ask your mortgage lender about credit qualifications early. If you have a good credit score, you also may want to ask your lender if you qualify for any special offers or lower interest rates.

It does not affect your credit score like it did in years past. FICO and VantageScore have evolved in their treatment of multiple inquiries to avoid unfairly penalizing a consumer for being a smart rate shopper. So multiple credit checks from different lenders in a short time say 30 days will be counted as only one inquiry.

Mortgage points (sometimes called “discount points”) are an optional fee that you can pay at closing to “buy” a lower interest rate and save on the overall cost of the mortgage loan. The cost of each mortgage point is equal to 1% of your total loan.

For example, if you take out a $150,000 loan, you may have the option to buy mortgage points for $1,500 each at closing. Mortgage points are most beneficial for home buyers who plan on living in their home for a long time because they can save tens of thousands of dollars over their loan term.

Be sure to ask your lender when it makes sense to buy mortgage points, how much each point will lower your interest rate and what the maximum number of points you can buy is.

An escrow account is a type of neutral savings account that holds money for prepaid property taxes and insurance premiums. Escrow accounts, which are usually established during closing, are often required for government-backed loans and optional for conventional loans. Ask your lender if you need an escrow account. If you’re required to have one, ask what options you have for paying for shortages and whether you can get a refund if you overpay. Make sure you also find out how much money you’ll need to hold in escrow.

It’s essential that you ask your mortgage lender about your interest rate to find out how much interest you’ll be paying on your loan. Your interest rate is determined by multiple factors, including your credit score, the location of the home you purchase, the size of your down payment and your loan type, term and amount.

However, you should also ask your mortgage lender about the annual percentage rate (APR), because it provides insight into the full cost of borrowing money. The APR includes both the interest rate and the fees that the lender charges to originate the loan.

If you’re planning to obtain an adjustable rate mortgage, it’s also helpful to ask your mortgage lender about the adjustment frequency. Knowing what your adjustment frequency is will tell you how often you can expect your interest rate (and thus the amount of your monthly payment) to change.

There isn’t a single type of mortgage loan that’s superior to others or right for everyone. Because multiple programs may be appropriate for you, it’s crucial that you discuss your options with your mortgage lender. Make sure to ask your lender about the following types of loans:

Conventional Fixed-Rate Mortgages

A 30-year conventional fixed-rate loan is the most common type of mortgage loan. Because the term is so long, monthly payments are lower, and the fact that rates are fixed means that your interest rate will remain the same throughout the life of the loan. However, the longer the term of your mortgage the more interest you’ll pay on the loan. So, if you can afford higher monthly payments, it may be worth choosing a 15- or 20-year term.

Adjustable Rate Mortgages

Unlike fixed-rate mortgages, the interest rates of ARMs change over the life of the loan. If you choose to obtain an adjustable rate mortgage, your interest rate will increase or decrease as the market fluctuates after the fixed period expires. This means that your mortgage payments can be different each month, which can make budgeting a bit challenging. The good news is that there are caps on this loan type, which limit the extent to which your interest rate and monthly payment can increase both periodically and over the life of the loan.

FHA Loans

Borrowers who have lower credit scores, incomes and savings are more likely to qualify for Federal Housing Administration (FHA). 

FHA loans have lower credit score minimums and down payment requirements than most conventional loans. Yet, FHA loans do come with restrictions, and there are limits to how much money you can borrow. Additionally, you’ll be required to pay a mortgage insurance premium.

VA Loans

VA loans are backed by the U.S. Department of Veteran Affairs, so they’re only available to veterans, active servicemembers and their surviving spouses. VA loans tend to have lower interest rates and don’t require down payments. However, there are some restrictions and fees involved in these mortgages. Those eligible should expect to pay funding fees and have reserve funds available.