What will my closing costs be?
A good estimate for a buyer to determine closing costs is about 1%-2% of the purchase price for the subject property. Keep in mind that loan costs only make up a portion of closing costs as there are various other fees such as title and escrow services, which are required in order for a transaction to move forward. For more details and examples, check out our blog all about closing costs by clicking here.
What is an escrow account?
An escrow account, also referred to as an impound account, is a feature that allows/requires the borrower to pay their property taxes and homeowners insurance alongside the principal/interest portion of their mortgage payment. If you decide to opt-in for an escrow account, your loan servicer will make these payments to the county and your homeowners’ insurance carrier using the funds contributed. If you opt out of an escrow account, you will be required to make these payments on your own. For more details about escrow accounts, check out our blog by clicking here.
What is a ‘point’ or ‘discount point’?
A (discount) point is a lender fee to buy down the interest rate. Each point is 1% of the total loan amount. For example, if a lender quotes you a 6% rate with 1 point on a $500K loan you will have a $5,000 fee to obtain that rate. Whether it makes sense to pay points or not depends on your specific scenario and the current interest rate environment. For more details and other examples, check out our blog about ‘discount points’ by clicking here.
How much do I qualify for?
It depends. The only way for a lender to accurately make this determination is to have a complete loan application including a credit report and supporting documentation. We highly recommend getting Pre-Approved well in advance as this will ensure you are shopping for a home in your price range. For more information about getting pre-approved and the entire mortgage process from start to finish, check out our block by clicking here.
Will A hard credit pull affect my overall credit score?
Hard credit pulls can have a short-term impact on your credit score which is normally negligible. If you have too many credit pulls on your record in the most recent 12 months, this can have a larger impact on your score. That being said, if you are shopping for a mortgage lender and have multiple inquiries done in a short time period (such as a day or week), the credit score model will only count this as a single pull since you are clearly shopping for the same product. For more information on how you can improve your credit score, check out our blog by clicking here.
Where will I make my payments?
You will make your monthly mortgage payments to a loan servicer. Who that is can vary though. Many times, the company that helped you with your loan originally is not the same company that will service your loan. After closing, you will receive a Welcome Letter from your Loan Servicer with instructions on how to set up an online account and how to make payments. Do note that this Loan Servicer can change throughout the life of the loan. If it does, both your current loan servicer and your new loan servicer will notify you to let you know about the change. For more information on servicing check out our blog by clicking here.
How long is my Pre-Approval good for?
The majority of Pre-Approvals do not have a set expiration date. As long as no major financial changes occur during the process in which you are looking for a property there should be no issues. That being said, you should look to check in with your mortgage lender at least once a month to get an update on interest rates and what you can expect your payment to look like. You can learn more about pre-approvals and other milestones by clicking here.
What is the best time to lock my interest rate?
Generally speaking, the best time to lock your interest rate is often once you are under contract. Some lenders offer lock and shop programs but these are normally quite expensive options. The exact time at which you should lock your interest rate depends on your personal risk tolerance and the current economic environment. For more information about interest rates and the locking process, you can check out our blog on this topic by clicking here.
What is mortgage insurance?
Mortgage insurance is a financial requirement that provides lenders with protection in the event that a borrower defaults on their mortgage. It generally has no benefits to borrowers other than allowing for loan programs that allow smaller down payment amounts. Typically mortgage insurance is included on loans where less than 20% down payment is included. Mortgage insurance will fall off at a certain point in most cases or will go away with a refinance. For more detailed information about mortgage insurance check out our full blog post by clicking here.
What are your upfront / Out-of-pocket fees?
The only fees that we ask borrowers to pay before closing include appraisal reports, condo documents, subordinations (refinances only), and occasionally credit reports (typically when repair work is involved). To learn more about how to best compare fees and choose a lender check out our blog on this topic by clicking here.
What is the difference between pre-approved and pre-qualified?
A pre-approval is the gold standard for the mortgage world. This means that the lender has taken a formal application, run credit, and reviewed financial documentation to ensure that a borrower is qualified for a loan. A pre-qualification is much weaker as it works based on information a borrower provides without any supporting documentation and typically no review. There is almost no scenario where it would make sense to get pre-qualified and not pre-approved. You can learn more about pre-approvals and other milestones by clicking here.
What is a temporary buydown?
A temporary buydown is a way to artificially reduce your interest rate for the first 1-3 years of your mortgage. Typically, this comes in the form of the seller providing concessions at closing which cover the difference between your normal mortgage payment and the artificially reduced rate. This can be a great tool for buyers who are expecting to have an increase in cash flow in the following years. You can learn more about temporary buydowns by checking out our full blog on the topic by clicking here.
Can I pay my mortgage off early?
Almost all mortgages for primary residences will allow you to pay off the loan early. When you start diving into non-traditional loan programs, especially for investment properties this becomes more of a concern. This is a great question to ask your lender upfront if you are using a niche loan product. Generally, this information will also be included in your loan documents upfront. If you want to learn more about making mortgage payments you can check out our blog by clicking here.
What happens if I miss a mortgage payment?
Missing a mortgage payment is really a worst-case scenario. In fact, most mortgages allow for a 15-day grace period before they even charge for a late payment. We highly recommend putting your mortgage payment on autopay so that you do not need to worry about making manual payments. All that being said, if you do miss a mortgage payment you will need to make up for it as soon as possible and will likely have a late fee. Missing payments will likely exclude you from being able to refinance or obtain another remortgage loan for the next 12 months. For more information on how mortgage payments work you can check out our blog by clicking here.
When can I refinance my mortgage?
Technically you can refinance your mortgage whenever you qualify. There are two extremely common scenarios for refinancing. The first scenario is to reduce your interest rate (known as a rate-term refinance) which typically allows you to reduce your monthly payment and save money on interest over the long run. The second scenario is a cash-out refinance where you tap into the equity of your home in order to have cash on hand oftentimes for a remodel or a big purchase/expenditure. There are also other more niche scenarios such as removing an individual off title or removing mortgage insurance. For more information about what to expect when refinancing you can check out our mortgage blog by clicking here.
When will my payments start?
The information for when your first mortgage payment is due will be included in your loan documents. Depending on whether your closing date falls in the 1st or 2nd half of the month your payment will likely be at the 1st of the next month or 1 month later. Remember that mortgages are paid in arrears unlikely most rental agreements so you are essentially paying for the previous month of living in the property when making payments. For more information on making your first mortgage payment check out our blog on the topic by clicking here.
Does it matter what money I use for my down payment?
Yes, this matters a lot. Due to strict money laundering laws, lenders will need to use money that comes from a verifiable source. Most loan programs require large deposits to be sourced if they occur within 60 days of closing. If you are using gift funds your donor should expect to sign a gift letter attesting to the fact that this is a gift. For this reason, you will not be able to use large sums of mattress money. Bottom line, as long as you can document where the money is coming from and it is a legitimate source of funds you should be alright. For more information about down payments and sourcing you can check out our mortgage blog on the topic by clicking here.
What is a Condo Questionnaire?
When buying a condo, there is a Homeowners Association or HOA. The HOA manages the finances, insurance, rules & regulations, and upkeep of the community. Before lending on a property, lenders require a condo questionnaire to be completed to gather information about the financial health and governance of the HOA. The list of questions is standardized by Fannie/Freddie but some lenders have additional unique questions that need to be answered. This questionnaire ensures that the lender and buyer are aware of any potential issues that may affect the property’s value. The questionnaire also asks if the HOA has any features that may make the property ineligibly for conventional financing like if the property operates as a condo-tel.
If you have any questions, feel free to reach out to discuss with one of our Mortgage Loan Originators at (760) 930-0569.
