Frequently Asked Questions

There are a lot of factors to consider when determining how much you can afford, but a good rule of thumb is to not let your monthly mortgage exceed 25% of your monthly take-home pay. Following this guideline will help you manage additional homeownership costs such as maintenance and repairs, while still keeping room for other financial goals like retirement and savings. There are also tons of affordability calculators you can find online, like this one!
Pre-Qualification and Pre-Approval both estimate the loan amount that you are likely to qualify for. This is an important first step in the home buying process to ensure you are looking at the right homes that fit your budget.

Pre-Qualification and Pre-Approval are often used interchangeably and can both help you stand out amongst the homebuyer competition. Both require you to supply an overview of your financial history such as your income, assets, debts, and credit score. However, most people look at pre-qualification as step one and pre-approval as step two because pre-approval requires formal documentation and verification.

The amount of time it takes to close a loan will differ from lender to lender, but a top mortgage lender should be able to close your loan within 30-45 days from application. Not having the proper documentation or having errors in your documentation may result in delays so it’s important to make sure you have all of your materials properly prepared.
Mortgage lenders will require you to provide certain documents in order to assess your ability to repay your loan. The Great Recession was due in part to borrowers not being adequately vetted for their ability to repay their loans. For this reason, the pre-approval process now requires significantly more paperwork. You will be asked to provide documentation regarding your employment and income, savings and assets, and outstanding debt.

Some of these documents include:

  • Tax returns
  • Pay stubs/W-2s
  • Bank statements
  • Credit history
  • Gift letters
  • Renting history
  • Work history
Most conventional loans require at least 5% down, but 20% is typically recommended. Mortgage companies often require borrowers to pay private mortgage insurance until they have 20% equity in the home. This additional fee is put in place to protect mortgage companies against borrowers who stop making payments on time.

Although this is standard, there are also many different loan programs that can help you purchase a home with less than 5% down. For example, some Veterans can qualify for VA loans that allow them to purchase a home with 0% down and no PMI. FHA loans can also allow first time homebuyers to purchase a home with as little as 3.5% down.

Your lender will be able to assess your financial situation and determine which programs you qualify for and which ones are best for your financial goals.

Discount points usually equate to 1% of the total loan amount. If you have a relationship with your lender or they want to offer you a special deal they may give you 1 or 2 discount points, reducing the cost of your loan accordingly.
Origination fees are charged by lenders upon entering into a loan agreement in order to cover the cost of processing the loan. Similar to discount points, origination fees are typically quoted as a percentage of your total loan and are usually between 0.5 and 1% of the total loan amount.

A home appraisal is an estimate of the fair or true value of a home in today’s market. Throughout the home loan process your lender will order a home appraisal to ensure they determine the right loan amount for you.

Appraisals are based on a variety of factors such as the home’s current condition, the quality of the surrounding neighborhood, and a comparable market analysis – which analyzes the recent sales of similar homes in the area.

Home appraisers are highly trained professionals who are licensed by state to provide objective and unbiased appraisals.

There are many different loan programs that offer various rates, down payments, terms, and fees. Talk to your loan officer about the different programs you qualify for in order to choose the right loan to fit your needs.

Here is an overview of some of the most common loans:

  • Fixed rate loan – a fixed rate loan provides a single interest rate for the life of the loan, typically 15 or 30 years
  • Adjustable rate loan – an adjustable rate loan typically provides a lower interest rate, but for a shorter amount of time such as 5 or 10 years. After this time passes your rate usually adjusts about once a year
  • FHA loan – FHA loans are insured by the Federal Housing Administration and allow some borrowers to qualify for loans with as little as 3.5% down, however they must pay mortgage insurance premiums
  • VA Loan – VA loans are insured by the Department of Veterans Affairs and provide home loans for veterans with as little as 0% down and no PMI
  • Jumbo Loan – Jumbo Loans are not eligible to be purchased, guaranteed or securitized by Fannie Mae or Freddie Mac, but can provide funding for amounts that exceed limits set by the government
PMI stands for Private Mortgage Insurance. It is common that loans may require PMI depending on your percentage down and the type of loan you apply for. Some VA loans don’t require PMI. PMI protects the lender – not the borrower – in situations where the borrower stops making payments.

The best first step to take in starting the home loan process is to reach out to your lender for a financial review. Once your loan officer understands your goals and your financial state, they can assist you in beginning the process.

We would love to help you better understand your options so you can make an informed decision. Give us a call at 855.849.0957 and we will schedule a free financial review!

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