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Mortgage FAQs

1. What will a lender look at when I apply for a mortgage?Lenders consider many factors in evaluating your loan application, but they usually focus on four areas:

2. What does it mean to get pre-approved?

Getting pre-approved means you receive a loan commitment from your mortgage company before you have found a home, based on a review of your credit and finances. Having your credit pre-approved shows sellers that you’re a qualified buyer and helps you establish a clear price range. The process is the same as a typical mortgage application, except that your application doesn’t include property information.

3. What if I’ve had credit problems?

Your credit history is only one factor in qualifying for a loan, and having made some late payments doesn’t have to keep you from buying a home. Someone who has consistently made payments on time in the past may have more financing options than someone who has not, but that doesn’t mean a mortgage is off-limits if you’ve had credit problems.

4. What is the minimum down payment I can make on a home?

There is generally no minimum down payment required for buying a home. Many first-time buyers believe they must be able to put down as much as 20% of a home’s purchase price in cash. That may have been true in the past, but many of the mortgage options available to today’s home-buyers require little or no down payment. With housing prices as high as they are, homeownership would be impossible for many people if not for these low-down-payment options.

5. Will I have to pay for Private Mortgage Insurance?

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 may have to pay for PMI.

6. What closing costs will I have to pay?

Closing costs vary based on a number of factors — including the lender, mortgage type, purchase contract, and location — but they usually include the following:

7. Should I choose a fixed-rate or adjustable-rate loan?

Most mortgage loans have either a fixed interest rate or an adjustable interest rate. With a fixed-rate mortgage, the interest rate never changes and your payments remain stable throughout the life of your loan. With an adjustable-rate mortgage (ARM), the interest rate changes at regular intervals — usually when the Frederal Reserve changes the Fed Funds rate — based on a formula that uses a market index.

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.

8. Should I lock my rate?

Locking your interest rate means your lender guarantees the rate on your loan even if market rates change before closing. Your lender may allow you to lock your rate for 30 to 60 days, with the option to extend the rate-lock period for a fee. So how do you know whether to lock your interest rate? It depends on whether you expect rates to rise or fall before you close on your home. No one knows for sure which direction rates will go at a given time, so it’s difficult to make a reliable prediction. It helps to keep track of announcements from the Federal Reserve Board, whose monetary policies have an effect on mortgage rates, and to talk to you financial advisor about what may happen in the near term.

9. What will my mortgage payments include?

For most borrowers, each monthly mortgage payment goes toward the following:

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