FAQS
Quick Answers to Common Mortgage Questions
General Mortgage Questions
A mortgage is a loan secured by real estate property. The borrower agrees to pay back the loan over a specified period with interest, and the property serves as collateral for the loan.
How much can I afford to borrow?
Generally, lenders use the debt-to-income ratio, typically allowing housing costs up to 28% of gross monthly income and total debt payments up to 36%. However, this varies by lender and loan program.
What’s the difference between pre-qualification and pre-approval?
- Pre-qualification: An informal estimate based on self-reported financial information
- Pre-approval: A formal process involving credit checks and documentation verification, providing a conditional commitment for a specific loan amount
How long does the mortgage process take?
Typically 30-45 days from application to closing, though it can vary based on loan type, documentation completeness, and market conditions.
Refinancing FAQs
When should I consider refinancing?
- Interest rates have dropped significantly
- Your credit score has improved
- You want to change loan terms
- You want to remove PMI
- You need cash for home improvements
What’s the difference between rate-and-term and cash-out refinancing?
- Rate-and-term: Changes interest rate or loan term without taking cash out
- Cash-out: Takes equity out of the home as cash, resulting in a larger loan balance
First-Time Buyer Questions
What programs are available for first-time buyers?
- FHA loans with low down payments
- VA loans for eligible veterans
- USDA loans for rural areas
- State and local down payment assistance programs
- Conventional loans with 3% down
Do I qualify as a first-time homebuyer?
Generally, you qualify if you haven’t owned a home in the past 3 years, though definitions vary by program.
Down Payments and Costs
How much do I need for a down payment?
- Conventional loans: As low as 3%
- FHA loans: 3.5%
- VA loans: 0% for eligible veterans
- USDA loans: 0% for eligible rural areas
- Some programs require 10-20%
Closing costs typically range from 2-5% of the loan amount and include:
- Loan origination fees
- Appraisal fees
- Title insurance
- Recording fees
- Attorney fees
- Prepaid taxes and insurance
Can I roll closing costs into my loan?
Yes, in some cases you can finance closing costs, but this increases your loan amount and monthly payment.
Credit and Income
- FHA loans: 500-580 minimum (higher down payment for lower scores)
- Conventional loans: 620+ typically
- VA loans: No minimum, but most lenders prefer 580+
- USDA loans: 640+ typically
How can I improve my credit score quickly?
- Pay down credit card balances
- Don’t close old credit accounts
- Pay all bills on time
- Dispute any errors on credit reports
- Avoid new credit applications
What income documentation do I need?
- Recent pay stubs (30 days)
- Tax returns (2 years)
- Bank statements (2 months)
- Employment verification letter
- Additional documents for self-employed borrowers
Loan Types and Programs
What’s the difference between fixed and adjustable rates?
- Fixed-rate: Interest rate remains the same throughout the loan term
- Adjustable-rate (ARM): Interest rate can change periodically based on market conditions
- Conventional: Not insured by government agencies
- FHA: Insured by Federal Housing Administration
- VA: For eligible veterans and service members
- USDA: For eligible rural and suburban areas
What is PMI and when can I remove it?
Private Mortgage Insurance (PMI) is required for conventional loans with less than 20% down. It can be removed when you reach 20% equity or automatically cancelled at 22% equity.
Interest Rates and Payments
How are interest rates determined?
Rates are based on:
- Credit score
- Down payment amount
- Loan term
- Loan type
- Market conditions
- Debt-to-income ratio
Should I buy points to lower my rate?
Points make sense if you plan to keep the loan long enough to recoup the upfront cost through lower monthly payments. Each point typically costs 1% of the loan amount and reduces the rate by 0.25%.
What’s included in my monthly payment?
Principal, Interest, Taxes, and Insurance (PITI), plus PMI if applicable.
Property and Appraisal
What happens during the home appraisal?
A licensed appraiser evaluates the property’s value by comparing it to recent sales of similar properties. The loan amount cannot exceed the appraised value.
What if the appraisal comes in low?
Options include:
- Negotiate with the seller to reduce the price
- Pay the difference in cash
- Request a second appraisal (if allowed)
- Walk away from the deal
What types of properties are eligible?
Most loan programs require the property to be your primary residence, though investment properties and second homes have different requirements and rates.
Application Process
What documents should I gather before applying?
- Government-issued ID
- Social Security card
- Pay stubs (recent 30 days)
- Tax returns (2 years)
- Bank statements (2 months)
- Employment verification
- Gift letter (if using gift funds)
Can I apply with a co-borrower?
Yes, applying with a co-borrower can help qualify for a larger loan amount by combining incomes and can potentially get better rates if the co-borrower has excellent credit.
What happens after I submit my application?
- Initial review and pre-underwriting
- Property appraisal ordered
- Full underwriting review
- Conditional approval with conditions
- Clear conditions
- Final approval
- Closing
Special Circumstances
Can I get a mortgage if I’m self-employed?
Yes, but documentation requirements are more extensive. You’ll typically need:
- Tax returns for 2 years
- Profit & loss statements
- Business license
- Accountant’s letter
What if I have a bankruptcy or foreclosure?
Waiting periods vary by loan type:
- Chapter 7 bankruptcy: 2-4 years
- Chapter 13 bankruptcy: 2-4 years
- Foreclosure: 3-7 years
- Short sale: 2-4 years
Can I use gift money for my down payment?
Yes, most loan programs allow gift funds from immediate family members. A gift letter documenting that the funds don’t need to be repaid is required.
Common Concerns
What if my income varies (commission, seasonal work)?
Lenders typically average your income over 2 years. Consistent employment history and increasing income trends help strengthen your application.
Can I buy a home with student loans?
Yes, but student loans are included in your debt-to-income calculations. Income-driven repayment plans may help lower your debt-to-income ratio.
What if I have no credit history?
Some lenders accept alternative credit histories (rent, utilities, cell phone payments) or you might consider:
- Getting added as an authorized user on someone’s credit card
- Applying for a secured credit card
- FHA loans with manual underwriting
Working with Your Mortgage Agent
How do mortgage agents get paid?
Mortgage agents typically earn compensation through lender-paid commissions, which don’t directly cost you money but are factored into the loan pricing.
What should I expect from my mortgage agent?
- Clear communication throughout the process
- Regular updates on loan status
- Explanation of all costs and terms
- Help gathering required documentation
- Coordination with other parties (real estate agents, title companies)
How do I choose the right mortgage agent?
Look for:
- Proper licensing and credentials
- Experience with your loan type
- Good reviews and references
- Clear communication style
- Competitive rates and terms
Red Flags to Watch For
What are warning signs of mortgage fraud?
- Pressure to sign blank documents
- Requests to misstate income or assets
- Promises of guaranteed approval regardless of credit
- Unusually high fees
- Pressure to rush through the process
What should I do if something seems wrong?
- Ask questions about anything unclear
- Get all promises in writing
- Compare offers from multiple lenders
- Report suspicious activity to regulatory authorities