Common Mortgage Questions Answered
Below you will find some of the most common mortgage questions and answers. This can help you understand some of the terminology in the mortgage process.
What is Mortgage Insurance?
Mortgage Insurance is a contract that insures the lender against loss caused by a mortgagor’s default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency.
What is a Rate Lock?
A rate lock is a guarantee from your mortgage lender that they will give a mortgage loan applicant a certain interest rate, at a certain price, for a specific time period.
What is an Amortization?
An amortization schedule is a detailed breakdown of each periodic payment on an amortizing loan, as generated by an amortization calculator.
What are Closing Costs?
These are expenses – over and above the price of the property- that are incurred by buyers and sellers when transferring ownership of a property. Closing costs normally include an origination fee, property taxes, charges for title insurance and escrow costs, appraisal fees, etc. Closing costs will vary according to the area country and the lenders used.
What are points?
Mortgage points, also known as discount points, are fees paid directly to the lender at closing in exchange for a reduced interest rate. This is also called “buying down the rate,” which can lower your monthly mortgage payments. One point costs 1 percent of your mortgage amount (or $1,000 for every $100,000).
Should I choose a 15-year or 30-year mortgage?
The difference between a 30-year and a 15 years can depend on affordability. You can also build equity faster with a 15-year loan and usually rates are lower in a 15-year loan. However a 30 year loan can allow you to have more disposable income at the end of each month.
What is a Fixed Rate Mortgage?
A Fixed Rate Mortgage is a mortgage that has an interest rate that does not change over time. Once your loan is closed, the rate will not change. This means, the principal and interest part of your mortgage payment will not change.
What is an Adjustable Rate Mortgage (ARM)
An adjustable-rate mortgage is a loan with an interest rate that changes. ARMs may start with lower monthly payments than fixed-rate mortgages, but keep in mind the following: Your monthly payments could change. They could go up — sometimes by a lot—even if interest rates don’t go up.
What documents are required to get a mortgage?
Some of the most common items requested when applying for a mortgage are:
- Social Security Number
- Proof of employment.
- Proof of income.
- Tax documents.
- Place of Residence.
- Bank account information.
- Credit information.
- Purchase agreement.
How much of a down payment is required to qualify for a mortgage loan?
Most loan programs require some amount of down payment as initial equity in your home. Minimum down payments requirements range from 3% – 25%, depending the type of loan you are taking out (primary residence, investment property, etc).
However, there are a few loan programs that may allow for a 0% down payment to qualified borrowers:
- VA Loans: Some Veterans may qualify for a loan program with a 0% down payment.
- USDA Loans: Some borrowers may qualify for a USDA loan with a 0% down payment for a home within designated rural areas.