03 February . 2021
Mortgage Payments FAQ's
Feeling confused about mortgages? You aren’t alone! Mortgages can be complicated, so it’s important to understand your options. A little research, before you meet with a lender, goes a long way and will empower you to make smart decisions, whether you’re in the process of buying your first home or you’re a seasoned real estate pro.
How do I qualify for a loan?
The idea of meeting with a lender can be a bit overwhelming, especially if you’re buying your first home. After all, this is probably one of the biggest financial decisions you’ll ever make! Take a deep breath and relax—there’s no need to feel anxious. Think of your first meeting with a lender as a questions and answer session. They’ll simply want to learn the basics about you and your financial situation. Then comes the paperwork (lots of paperwork). Once your loan process gets started, be prepared to provide proof of:
- Where you work
- Your income
- Any debt you have
- Your assets
- How much you plan to put down on your home
A good lender should clearly explain your mortgage options and answer all your questions so you feel confident in your decision. A mortgage is a huge financial commitment, so make sure you understand everything!
Can you get a mortgage without a credit score?
This is one of the most commonly asked mortgage questions, and the answer may surprise you. If you’ve paid off all your debt or are fairly young—it is possible you won’t have a credit score when you meet with a lender. That might give you butterflies, but don’t worry; you can still get a mortgage. If you apply for a mortgage without a credit score, you’ll need to go through a process called manual underwriting. Manual underwriting means you’ll be asked to provide additional paperwork for the underwriter to review personally. Your loan process may take a little longer, but buying a home without the strain of extra debt is worth it!
What’s the difference between being prequalified and preapproved?
A quick conversation with your lender about your income, assets and down payment is all it takes to get pre qualified. But if you want to get pre approved, your lender will need to verify your financial information and submit your loan for preliminary underwriting. A preapproval takes a little more time and documentation, but it also carries a lot more weight.
Which is better? Think of prequalification as an initial step and preapproval as the green light signaling that you’re ready to start your home search. When sellers review your offer, a preapproval means you’re a serious buyer whose lender has already started the loan process.
How long does a pre approval last?
The time frame varies by lender, but commonly a mortgage pre approval is good for 90 days. The preapproval letter may have an expiration date on it, but if you’re still shopping for homes after that point, you can ask the lender to renew the preapproval. You may need to provide updated information, and the lender may check your credit again.
How much should I save for a down payment?
It’s recommended that you put at least 10% down on a home, but 20% is even better because you won’t have private mortgage insurance (PMI) tacked on to your monthly amount due. PMI is an extra cost added to your monthly payment that doesn’t go toward paying off your mortgage.
What will my mortgage payment include?
So what happens when you send in that mortgage payment every month? It’s nice to think the whole amount just reduces your principal, but your monthly payment actually goes toward a lot more. Here’s what your typical monthly mortgage payment includes:
- Homeowners insurance
- Property taxes
- Private mortgage insurance (PMI), if you put down less than 20% on your home
If you want to pay more on your mortgage, be sure to specify that you want any extra money to go toward the principal only, not an advance payment that prepays interest.
What is an escrow account?
Your mortgage payment may include additional costs like your homeowner’s insurance and property taxes. These are annual expenses that are part of homeownership, and the lender is at risk if you don’t make those payments.
Your lender can add the monthly portion of each of those accounts to your mortgage payment. That money is held in an escrow account that is managed by a third party to make sure those costs are paid on time.
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