At Point Equity, we talk about mortgages all day, every day. It’s what we do best - and we love doing it.
We recently sat down and talked about the questions we’re asked most often by our clients. We realized most of our clients ask the same 7 general questions. So we decided to list those 7 questions, and our answers, right here.
After reading them, schedule time to talk with a Point Equity loan officer to discuss your situation and get all of your other questions answered.
Ready to dive in?
#1 - How Do I Get Qualified For a Mortgage?
Early in the process of applying for a mortgage, most of our clients are both a little confused and slightly overwhelmed about getting qualified. We tell them to “pull the band-aid off fast and get a pre-approval.”
We’ll do a complete assessment and offer advice on the best mortgage options for YOU. Start by contacting a loan officer, answering a few questions, and setting up the appointment. The loan officer will give you a list of documents to bring to your appointment.
The pre-approval process focuses on work history, income, savings (in whatever form that is for you), and credit history. The documents the loan officer will ask you to bring are related to these areas.
At the meeting, you’ll complete a loan application, have your credit report pulled, and provide your documents. It’s also time for you to ask any questions and give the loan officer a big picture view of your situation. Like how much of a down payment you plan on making, where it’s coming from, and what your comfortable paying every month.
You may get a rough idea of the loan amount you qualify for at the first meeting, depending on your situation. But you’ll definitely leave with a clear understanding of everyone’s next steps.
#2 - What Kind of Paperwork Will I Need to Get a Loan?
The paperwork you need to go through the pre-approval process will fall into these categories: income, assets, and credit. The actual documents required will depend on your situation, but here’s a general list:
- A month of paystubs
- Most recent two years of W-2’s or full tax returns if self-employed
- Most recent two months of asset statements (checking, savings, and other investments.)
- Contact information for your landlord (if you’re currently renting)
Be prepared to provide more documents once the loan officer has reviewed everything. Each step of the review process can uncover more about how your personal situation needs to be documented in each area (income, assets, and credit.) Yes, more documentation requirements can be frustrating.
Keep in mind the more detailed your loan file is the better. When your file ultimately meets the underwriter making the formal decision, they’ll ask many questions. A well-documented loan file answers those questions as they’re asked by the underwriter - leading to faster, smoother loan approval.
#3 - What Credit Score Do I Need to Be Approved?
This question brings the most anxiety to our clients - but it shouldn’t. There are many loan programs available, including some that accept credit scores in the low 600’s (620 minimum.) The pre-approval process provides information on all the loan options available to you.
Your credit score is one factor considered along with your work history, savings, and income. Lenders may require letters of explanation and supporting documents to be satisfied in some credit situations. Go over every detail with the loan officer and get their advice.
If your score is too low, and your credit history needs improvement, you’ll leave the meeting with a road map spelling out the specific next steps to take. You’ll have real information to work with - and that’s better than worrying about the unknown.
#4 - How Big of a Down Payment Do I Need?
The size of your downpayment will be determined, partly, by the purchase price of the home and partly by your available cash. Downpayments are calculated as a percentage of the price. There are loan programs available that may allow no money down (USDA loans and VA loans), and loans that allow 3-3.5% down.
Any downpayment that falls below 20% of the home’s purchase price will require you to pay a mortgage insurance premium, along with the mortgage payment, to offset the lender’s risk. (See this article to answer all your questions about mortgage insurance.)
The loan officer will give you the specific costs you’ll incur in getting a mortgage loan. Based on your available funds, you may have to back into the amount you have available for the downpayment by first subtracting those costs. Here’s an article to help you understand what those costs are and who is charging them.
#5 - When Do I Lock-in My Interest Rate?
Our answer is usually as soon as possible but it’s not that simple. Interest rates change often because they’re driven by the financial markets, similar to the stock market. Everyone knows how fast the stock market rises and falls, and the same is true of mortgage rates.
It’s possible to lock in an interest rate right after formally applying when you are refinancing an existing mortgage. But when you’re buying a home, you have to have a signed purchase contract on a specific property address in order to lock in the interest rate.
You can’t control how long it takes to find a home and sign the contract to buy it, so take a look at a monthly payment based on different interest rates. If you’re desired rate, for example, is 4.25%, have the loan officer show you the payment at that rate and for ⅛% and ¼% higher. Be mentally prepared to pay more monthly, lower your purchase price, or increase your downpayment if rates rise.
#6 - Will I Have to Pay Mortgage Insurance?
Lenders require borrowers to pay the monthly premium for mortgage insurance when they make a downpayment of less than 20% of the purchase price. If that describes your situation then you’ll pay a monthly premium with your mortgage payment.
With an FHA loan, the mortgage insurance premium is permanent, regardless of how much equity you have over time. For non-FHA loans with mortgage insurance, once you have enough equity, the mortgage insurance can be removed.
Discuss with your loan officer the specific steps involved in removing the mortgage insurance as it varies by lender. Refinancing your mortgage, once you have at least 20% equity, will automatically eliminate the mortgage insurance requirement. For more detailed information about the different types of mortgage insurance, check out this article.
#7 - Can I Negotiate the Closing Costs?
There are some closing costs you can shop for and the Loan Estimate (provided within 3 days of making your application) will point those out. Consider that any service provider involved in the loan process is fully aware of what competitors are charging and sets their fees accordingly.
Another thing to consider is the time it will take you to do your research. However long it takes, your loan file may wait to move forward until you make a choice on a provider. Consult with your loan officer and real estate agent about how much time you have available based on your agreement with the seller, which reflected in your purchase contract.
In the end, you’ll need to weigh saving $100-300 in fees against your contractual obligation to close on the date promised in the contract.
Our answers to these questions may have generated even more questions in your mind. All the more reason to connect with your Point Equity Loan Officer as soon as possible so you can begin to find your dream home.