What will a lender look at when I apply for a mortgage?

Lenders consider many factors in evaluating your loan application. Lenders will look at your income and debt to determine how much money you can put towards a mortgage payment each month. They will look at your credit score to see if you have been financial responsible in the past. They will also look at the property you are planning to buy to see if it is worth the amount of money you are planning to pay for it.

What if I have bad credit?

Your credit history is only one factor that a lender will look at. While someone with good credit will have more options available to them it doesn't’t mean someone with bad credit cannot qualify for a loan. In fact, there are several mortgage programs specifically designed for people with bad credit.

How much money do I need for a down payment?

Traditionally, home buyers needed a 20% down payment in order to buy there home. In reality there is no minimum down payment required for buying a home. Real estate prices are so high that mortgage lenders have created many financing options to meet home buyer’s needs. There are many different loan options now available that include little or no down payment, making it easy to find a loan program that is right for you.

What is the difference between a fixed-rate mortgage and an adjustable-rate mortgage?

A fixed-rate mortgage is a loan in which the interest rate never changes and your payments remain stable throughout the life of your loan. An adjustable-rate mortgage (ARM) is a loan in which the interest rate changes at regular intervals, usually once every year, which is based on the current interest rate. For most ARMs rate adjustments begin after an initial period, usually between three months and five years, during which the rate is fixed. A fixed rate is usually best if you plan to stay in your home for the long term and are buying at a time when rates are relatively low. An ARM is usually best if you plan to move before the rate adjustments begin, or if you are buying when rates are relatively high.

What is pre-approval and do I need it?

Pre-approval is the process of getting a loan commitment from your mortgage company before you have found a home. The mortgage company will look at your credit and finances to pre-approve you. While you do not need a pre-approval letter it shows sellers that you’re a qualified buyer and it will give you one step up when you put an offer on a home.

What is Private Mortgage Insurance and will I have to pay it?

Private Mortgage Insurance (PMI) provides your lender with a way to recoup its investment if you are unable to repay your loan. PMI is usually required when the mortgage amount is higher than 80% of the home’s value. That means that if you buy a home with a down payment of less than 20%, you will probably have to pay PMI. Many people get around this by using an 80/20 program, which combines a first mortgage with home equity financing.

How much are closing costs?

Closing costs will vary based on several factors including the lender, the type of mortgage, the purchase contract, and the state you live in. Your lender will charge fees for appraisal and credit reports. If you are paying for points those will also be charged at closing. There are also fees for title insurance and hazard insurance and deposits for an escrow account. A lender can give you the approximate closing costs of your mortgage with a quote so that you can compare lenders.

What are discount points?

Points are prepaid interest, which you can pay to your lender at closing in exchange for a lower interest rate on your mortgage. Each point is equal to 1% of the loan amount. Paying points at closing will lower your monthly payment. Whether they will save you money in the long run depends on how long you plan to stay in your home.

Should I lock my rate?

When you lock your interest rate your lender will guarantee that rate for a determine amount of time, no matter what the market does. Usually lenders will lock a rate for 30 to 60 days. If interest rates rise within that period of your lower interest rate is safe, and that is what you will pay on your loan. Talking with your mortgage lender will give you a better idea of whether you should lock your rate. They will usually keep up with current events and know whether the interest rate is planning to rise or fall.

What will my mortgage payments include?

Your mortgage payment usually consists of two parts. The principal is the amount of money you are paying towards the amount borrowed. The interest is the amount of money you are paying to borrow the money. In the beginning of your mortgage you will pay more to interest and less to principal and as your mortgage progresses you will see a shift where more of the money is going to principal and less to interest.