Most Common Questions Buyers Have About Mortgages
If you're just starting the process of looking for a mortgage and shopping for homes, you probably have a lot of questions. The good thing is, a lot of people have had the same questions and would love to answer them here. Whether you are buying a luxury home, condominium, starter home, townhouse, or a plot of land perfect for building, you probably will need a mortgage in some form or fashion. Here are some of the top and most common questions homebuyers have on mortgages.
Do I need perfect credit to get a mortgage?
Not necessarily but in today's interesting seller's market, the more qualified you are the more likely your offer will be accepted. Having great credit definitely helps. Not only do sellers feel more inclined to accept your offer, but you're likely to get better rates and better terms. The higher your credit score, the better loan you can probably get. Lower credit scores may qualify for an FHA mortgage, but this also works for a lower down payment as well. The difference between a 620 credit score and the 760 credit score could be thousands of dollars in savings so it definitely is beneficial to increase your credit score as high as possible.
How much down payment do I need?
This all depends on the type of loan you are applying for. FHA and USDA home loans can require as little as 3% or 3.5% down payment. Conventional loans typically are between 10% and 20%. For first-time homebuyers, this can be a big chunk of money, but there are different programs and options that might work better than others. Sometimes there are grants and down payment assistance programs that can be built into the cost of the mortgage itself.
How much are closing costs?
Closing costs are all the charges that need to be paid before the loan is completed. This is usually title insurance, escrow fees, origination fees and other miscellaneous fees. They can vary greatly so you want to talk with your lender about negotiating these fees if possible. They can range anywhere from 1% to 5% of the purchase price of the home so make sure you are aware of these fees and when you'll need to pay them.
What are discount points?
This is probably one of the most common questions because it just seems confusing. A discount point is money paid upfront on the mortgage in exchange for a lower interest rate. You are essentially buying down your interest rate. One point is equal to 1% of the loan amount. Discount points are tax-deductible and if the interest savings over the life of the loan is greater than the points paid, it could be well worth paying the points ahead of time.
What's the difference between prequalification and preapproval?
Prequalification is simply reviewing your finances to determine if you would even qualify for a mortgage but it's usually done ahead of time with just some preliminary information. Preapproval is necessary when getting a loan and that you're basically applying for a mortgage. The lender will take all of your factual information such as income, debts, liabilities, and assets and determine how much in a monthly mortgage payment is appropriate for your income. They will calculate that into a purchase price for home to give you a better idea of how much home you can afford. This is mandatory before making an offer.
What does escrow do?
Escrow or the escrow company is the middle man that holds onto money, passes money from buyer to seller, facilitates the transaction, and typically closes the deal for you. They are the middleman between the buyer and the seller. Most closing costs will go towards the escrow company and the title company, which are oftentimes the same.
How much is my mortgage payment?
This is really the end all question when it comes to a mortgage. You want to know how much will be paying a mortgage each month. In addition to the principal, which is the repayment of the balance of the loan, your payment may also include interest charges, property taxes, and insurance. Property taxes and insurance can be paid separately but a lot of times they can be built into the monthly mortgage payment, making it easier to pay each month rather than to come up with a large sum at the end of the year.
If you have other questions that we have not addressed, feel free to ask them in the comments below. Would love to help you find the perfect mortgage for your Portland home or property. Contact us at any time.