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Mortgage Loans FAQs

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Maria Neira
October 15, 2018

It is important that you do research before applying for any loan, especially a mortgage loan. Buying a home is going to be one of the biggest financial decisions you make in your life. That's why it's important to shop around for the best mortgage loan rate before choosing a lender.

What is a mortgage loan?

A mortgage is a loan that is secured by real estate or property. In exchange for funds received by the homebuyer to purchase the home or property, the buyer promises to pay back the loan to the lender within a certain time frame at a certain interest rate. If the buyer defaults on the terms of the note, then the lender has the legal right to claim buyers home.

Until the loan is paid off, the lender owns the property or the home.

What information do the mortgage lenders need?

Typically, the information needed will vary from buyer to buyer, but common documentation includes:

  • Driver's license
  • Social security card
  • Bank and asset statements
  • A fully executed purchase contract
  • Pay stubs

After obtaining the mortgage, there will be additional requested information including:

  • Updated pay stubs
  • Updated bank statements
  • Verification of employment

Pre-qualification vs pre-approval 

Pre-qualification will consist of a brief talk between you and your potential lender about your income, assets and the amount of down payment you can afford. A pre-qualification doesn't not mean you have secured that amount of money. 

Pre-approval, on the other hand, requires verification of your financial information to the potential lender. Then they submit the loan with your information for preliminary underwriting.

Think of pre-qualification as being Step 1 in the process, then you can move forward with Step 2 of being pre-approved. Once you're pre-approved, you can start  the home searching process.

Also, having a pre-approval notice will give the home sellers a sense of that you are a serious potential buyer.

How much can I afford a month?

This is a crucial question you have to ask yourself because the home you buy can quickly escalate from an asset to a liability that you can’t afford to pay.  

There are many useful resources that can be helpful when deciding how much you can afford a month to live comfortably.  

Home affordability calculator 

Input your annual income, down payment and other information into a home affordability calculator to help you estimate how much can fit into your monthly budget.

You don’t want to exceed a debt-income-ratio of more than 36% because that can limit the amount you’ll be able to borrow for your preferred lender.

Mortgage calculator

A mortgage calculator will help you estimate your monthly payment by inputting the home price, down payment, interest rate along with any homeowners insurance or monthly HOA dues as well. 

It is a quick and easy to use resource that will facilitate your home buying process.

How do I decide which mortgage is best for me?

There are many mortgage loans to choose from but it is important to know which loan will be the least expensive and the best-personalized rates for you.

  • Adjustable-Rate Mortgage (ARM)
  • Federal Housing Administration (FHA) Loan
  • Department of Veterans Affairs (VA) Loan
  • Fixed-Rate Conventional Loan

What will my mortgage payment include?

Wouldn’t it be nice if all the money you send to pay off your mortgage could go entirely to your principal? Yeah… I wish.

Below is what a typical mortgage payment includes:

  • Principal
  • Interest
  • Homeowners insurance (if you have insurance)
  • Property taxes
  • Private mortgage interest (only if you put down less than 20%)

If you want to pay off your principal quicker than specify what you want the money towards because if not it can be added to the prepayment of the interest amount.

What happens when I close and how long will it take?

You, the buyer, will be responsible for paying the closing costs which comes out to be 3-4% of your new home purchase price. Three days before closing, you will receive a Closing Disclosure that will provide you with all the information, so you know exactly what to expect on the day you close.

Overall, it usually takes an average of 40 days. There are many factors that could make lengthen or shorten the time frame, including the length of your contract and/or any changes made, your financial situation, and your loan type.