FAQ about home mortgage
The learning starts here! Here are the most frequently asked questions we hear every day:
Do I need to be a Hacienda resident or client or be a first-time homebuyer to get a mortgage through Hacienda?
No, we can assist anyone with their mortgage financing needs.
Do I need great credit to get a mortgage?
Not necessarily, but it will certainly help. It is possible to get a conventional mortgage with a FICO credit score as low as 620, and you can obtain a higher-cost FHA mortgage with a score in the 500s. However, be aware that the lower your score, the higher your interest rate will be.
How much of a down payment do I need?
The short answer is that you can get a conventional mortgage with as little as 3% down payment, an FHA loan with 3.5% down, and a VA or USDA loan with a zero-down payment. However, if you do not have 20% for a down payment with a conventional loan, you will have to have mortgage insurance on your loan, this can be removed after the loan has been paid down to 80% of the value of the home or the lender automatically remove it at 78% of the value of the home. If you get an FHA loan, you will have to pay private mortgage insurance known as MIP (Mortgage Insurance Premium) and it will remain for the life of the loan.
What are closing costs, and how much should I expect them to be?
The term “closing costs” refer to all of the charges you will need to pay before your loan is completed. This will include fees such as origination fees, title insurance, escrow fees, credit report fees, appraisal fees, prepaid escrows, and more. Closing costs can vary significantly from lender to lender.
Should I choose a fixed-rate or an adjustable-rate mortgage?
When interest rates are historically low, like they are now, a fixed-rate mortgage makes good financial sense. Not surprisingly, the vast majority of mortgages originated today are fixed-rate. In fact, only about 3% of buyers are choosing adjustable-rate loans. Your loan officer will discuss your loan options with you.
Should I “lock” my interest rate?
A rate lock means that you are guaranteed today’s mortgage interest rate for some predetermined period, typically 45 to 60 days. If interest rates have been trending upward, it is generally a good idea to lock in your rate.
What type of mortgage is best for me?
There are several different types of mortgages to choose from. A conventional mortgage is tougher to qualify for credit-wise, but the mortgage insurance is not for the life of the loan, An FHA loan is easier to qualify for credit-wise, but tougher on property requirements and the MIP is for the life of the loan. If you’re a veteran, a VA loan could be the best option for you, and if you plan to buy a home in a rural area, a USDA mortgage could give you a no-money-down option.
What are discount points, and should I pay them?
Discount points are money that you pay up front on your mortgage in exchange for a lower interest rate. One “point” is equal to 1% of the loan amount, so on a $200,000 mortgage, one discount point would be $2,000. Discount points are tax-deductible. Your loan officer can discuss the pros and cons of paying discount points for your interest rate.
Should I get a 15-year or 30-year term loan?
This depends on how much you want to stretch your budget. If you can afford the higher monthly payments, a 15-year mortgage usually comes with a better interest rate than a 30-year version. Not only will you pay off the house quicker, but you can save a tremendous amount of interest. On the other hand, a 30-year mortgage will cost less per month.
What documentation should I gather?
Your lender may ask for many different items, but in general, be prepared to provide all of the following:
- Income verification (Last two years’ tax returns, W-2s, 1099s, and your most recent 30 day’s pay stubs) for all borrowers
- ID: Drivers’ license, work visa, ITIN Documentation, passport, etc.
- 60 days most Bank statements (all pages, including blank pages)
- If some or all of your down payment is coming from a gift, you will need a gift letter from the source of the funds that confirm they are a gift, not a loan. Your loan officer will provide the gift letter to be completed.
What is a pre-qualification?
A pre-qualification is a basic review of your finances to determine if you would qualify for a mortgage. In general, a pre-qualification is based on unverified information you provide and does not include a credit check or any documentation, and is therefore not a firm guarantee of a loan.
What is a pre-approval?
Unlike a pre-qualification, a pre-approval can be a highly useful tool in the homebuying process. As part of a pre-approval, a lender will check your credit, verify your income, employment and assets. A pre-approval letter will be provided to the Realtor of your choice and presented with your offer on a home and will show sellers that you’re serious about buying a home, and that you’re likely to be able to follow through on a bid, and close on their property.
What is an escrow account?
When you obtain a mortgage, you will be required to put money into an escrow account to guarantee the lender that the ongoing expenses for property taxes and homeowner’s insurance will be collected on a monthly basis as part of your monthly mortgage payment to your lender. You will pay a lump sum into the escrow account at closing (also known as your “prepaids”).
How long does it take to close a mortgage?
Mortgages tend to take on average 45 days to originate. A lot of things need to happen between you submitting your mortgage application and you taking ownership of your home.
Just to name a few: As part of the process you will want to schedule and complete a home inspection after you have an accepted offer; the seller may need time to complete repairs. An appraisal will need to be done on the property. The loan needs to make its way through underwriting. It is a lengthy process. You may need to gather additional documentation for your lender once it has gone through underwriting.
How is my mortgage payment determined?
Depending on your situation, there are typically four parts of your mortgage payment:
- Principal: Repayment of your outstanding balance.
- Interest: Payment of the interest charged on the outstanding balance.
- Taxes: One-twelfth of your expected annual property taxes will be included in your mortgage payment, and deposited into your escrow account.
- Insurance: This includes homeowner’s insurance, as well as any other hazard insurances you are required to have, such as flood, if you are in a flood zone or windstorm.
Based on these four items, your mortgage payments are sometimes referred to as PITI.
Will my monthly payments change during the loan term?
It’s possible. Even with a fixed-rate loan, your payment may change over time. The reason? Your property taxes and homeowner’s insurance. If the property taxes or homeowner’s insurance rise, it will be necessary for your lender to ask for a higher escrow payment to cover the increase.