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Common Questions

Do you have mortgage questions? You aren’t alone.

 

Mortgages can be complicated, but it’s important to understand your options. Knowing the answers to your mortgage questions can empower you to make smart decisions, whether you’re buying your first home or interested in refinancing your current mortgage.

Learning about your different mortgage options before you meet with a lender can help you get the best deal on a house that will benefit your family for years to come.

 

Here are some common mortgage questions you may have during the home-buying or refinancing process.

1.

Pre-Approve

The idea of meeting with a lender can be intimidating, especially if you’re buying your first home. After all, this is probably the biggest purchase you’ll ever make!

Take a deep breath and relax—you don’t have to be stressed. Think of your first meeting with a lender as a get-to-know-you session. They’ll simply want to learn a few basics about you and your financial situation.

 

Then comes the paperwork!

Once your loan process gets started, be prepared to provide proof of:

 

  • Where you work

  • Your income

  • Any debt you have

  • Your assets

  • How much you plan to put down on your home

A good lender will clearly explain your mortgage options and answer all your questions so you feel confident in your decision. If they don’t, find a new lender. A mortgage is a huge financial commitment, and you should never sign up for something you don’t understand!

 

It’s likely that your lender will approve you for more money than you want to spend. But keep this in mind: Just because you qualify for a big loan doesn’t mean you can afford it!

 

Just because you qualify for a big loan doesn’t mean you can afford it!

2.

Pre-Approve

This is one of the most commonly asked mortgage questions, and the answer may surprise you.

If you’ve paid off all your debt—and we recommend you do before buying a home—it is possible you won’t have a credit score when you meet with a lender. That might make you nervous. But don’t worry; you can still get a mortgage.

 

If you apply for a mortgage without a credit score, you’ll need to go through a process called manual underwriting. Manual underwriting simply means you’ll be asked to provide additional paperwork for the underwriter to review personally. Your loan process may take a little longer, but buying a home without the strain of extra debt is worth it!

 

Not every lender offers manual underwriting.

Do a little research on the front end to find the ones in your area that will, like One Republic Mortgage.

3.

Pre-Approve

What’s the difference between being prequalified and preapproved?

A quick conversation with your lender about your income, assets and down payment is all it takes to get prequalified.

A quick conversation with your lender about your income, assets and down payment is all it takes to get prequalified. But if you want to get preapproved, your lender will need to verify your financial information and submit your loan for preliminary underwriting. 

 

A preapproval takes a little more time and documentation, but it also carries a

lot more weight.

Which is better? Think of prequalification as an initial step and preapproval as the green light signaling that you’re ready to start your home search. When sellers review your offer, a preapproval means you’re a serious buyer whose lender has already started the loan process.

4.

Pre-Approve

Buying "too much house" can quickly turn your home into a liability instead of an asset. 

That’s why it’s important to know what you can afford before you ever start looking at homes with your real estate agent.

 

We recommend keeping your monthly mortgage payment to 25% or less of your monthly take-home pay. For example, if you bring home $5,000 a month, your monthly mortgage payment should be no more than $1,250. Using our easy mortgage calculator, you’ll find that means you can afford a $211,000 home on a 15-year fixed-rate loan with a 20% down payment.

 

With a conservative monthly mortgage payment, you’ll have room in your budget to cover additional costs of homeownership, like repairs and maintenance, while saving for other financial goals, including retirement.

5.

Pre-Approve

We recommend putting at least 10% down on a home, but 20% is even better because you won’t have to pay private mortgage insurance (PMI).

PMI is an extra cost added to your monthly payment that doesn’t go toward paying off your mortgage.

 

Saving a big down payment takes hard work and patience, but it’s worth it. Here’s why:

 

  • You’ll have built-in equity when you move into your home. 

  • You can finance less, which means you’ll have a lower monthly payment.

On the flip side, if you buy a home with little to no down payment and the market dips, you could be stuck until home values recover.

 

If the goal is to pay off your home quickly, why not get a head start with a big down payment? Now that’s a good game plan!

6.

Pre-Approve

With so many mortgage options out there, it can be hard to know how each would impact you in the long run. Here are the most common mortgage loan types:

With so many mortgage options out there, it can be hard to know how each would impact you in the long run. Here are the most common mortgage loan types:

 

  • Adjustable-Rate Mortgage (ARM)

  • Federal Housing Administration (FHA) Loan

  • Department of Veterans Affairs (VA) Loan

  • Fixed-Rate Conventional Loan

The Pros and Cons of Home Mortgage Product Loan types, including Adjustable Rate Mortgage (ARM), Federal Housing Administration (FHA) Loan, Department of Veterans Affairs (VA) Loan, and Fixed-Rate Conventional Loans

 

We recommend choosing a 15-year fixed-rate conventional loan. Why not a 30-year mortgage? Because you’ll pay thousands more in interest if you go with a 30-year mortgage. For a $250,000 loan, that could mean a difference of more than $100,000!

 

A 15-year term does come with a higher monthly payment, so you may need to adjust your home-buying budget to get your mortgage payment down to 25% or less of your monthly income.

 

But the good news is a 15-year mortgage actually pays off in 15 years. Why be in debt for 30 years when you can knock out your mortgage in half the time and save six figures in interest? That's a win-win!

 

Why be in debt for 30 years when you can knock out your mortgage in half the time and save six figures in interest?

7.

Pre-Approve

High interest rates bring higher monthly payments and increase the overall interest you’ll pay over the life of your loan. A low interest rate saves you money in both the short and long term.

Of course, just like you can’t time the stock market, it’s nearly impossible to time your home purchase with the best interest rates. The past five years have held some of the most affordable interest rates ever, according to the Federal Home Loan Mortgage Corporation, and their recent forecast predicts the trend will continue.

 

It may be hard to time your home purchase with the best interest rates, but there are things you can do to get a lower rate. For example, a benefit of the 15-year, fixed mortgage is that it has a lower interest rate than a 30-year, fixed mortgage. Sometimes a bigger down payment can also help you get a better interest rate.

 

The money you pay in interest doesn’t ever go toward paying off the principal balance of your home. That’s why it’s a smart move to get a low interest rate on your mortgage and then pay off your house as quickly as you can.