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FAQs
What is a prepayment penalty and should I have one?
A prepayment penalty allows the lender to charge the borrower a fee if they close their loan within a certain period, usually the first five years of the loan. This fee is usually equal to about six months worth of interest payments on a loan. In some cases you may be able to get a lower rate if the lender includes a prepayment penalty, but it is usually better to try and avoid it.
What is the difference between pre-qualification and pre-approval?
Pre-qualification is when a prospective buyer discloses, either verbally or by providing documentation of, their income, assets and credit so that a lender can determine how much a borrower will be likely to afford in loan payments. A pre-approval involves an underwriter and is a more formal review of your credit and income. A pre-qualification will commonly only provide you with an idea of what you can afford while a pre-approval will actually guarantee you a loan of a certain amount.
Am I required to get financing from the lender that my real estate agents recommends?
A recommendation is just that, a suggestion, you are never required to choose the lender that anyone suggests to you. The best way for you to find a lender is to shop around and compare deals.
What are points?
Also called discount points, a point is 1% of the amount of the loan. Points are a one-time fee added to your closing costs and generally results in a slightly lower interest rate on your loan.
What is amortization?
Amortization is the period it would take you to pay off your mortgage in full. As long as you maintain the same terms and payment periods of your loan your amortization period will be whatever the term of your mortgage was when it was first taken out.
What is the advantage of weekly payments over monthly payments?
By making weekly payments you will make one extra payment per year. Though the amount of money you will be paying will not be severe doing this will lower the period in which your mortgage is paid off.
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 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, homebuyers 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 homebuyer’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.