Let’s face it. Mortgages are complicated. When most people buy a home, they have no idea what they’re getting into. That’s an easy way to get in over your head. And a bad mortgage can turn your homeownership dream into a financial nightmare.
The good news is, knowing the answers to a few basic mortgage questions can empower you to make smart decisions with your money. Whether you’re working with a real estate agent to purchase your first home or you’re looking to avoid mistakes you’ve made before, these questions can help you choose a home mortgage loan that will bless your family for years to come.Commonly asked home loan questions:
- How do you qualify for a loan?
- Can you get a home mortgage loan without a credit score?
- What’s the difference between being prequalified and preapproved?
- How much home can you afford?
- How much should you save for a down payment?
- How do you know which home mortgage option is right for you?
- How do mortgage rate trends affect your home loan?
- What does your mortgage payment include?
- What happens after you get preapproved for a home mortgage loan?
Just the idea of meeting with a lender can be intimidating. After all, this is probably the biggest purchase you’ll ever make!
Think of your first meeting with your 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 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 it doesn’t mean you can afford it.2. Can you get a home mortgage loan without a credit score?
The short answer: Yes!
If you’ve paid off all your debt—and we recommend you do before buying a home—it’s 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 and the underwriter will review your documents personally. Your loan process may take a little longer, but buying a home with no extra debt weighing you down is worth it!
Not every lender offers manual underwriting. A little research on the front end can help you find the ones in your area that do.3. What’s the difference between being prequalified and pre-approved?
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 pre-approved, your lender will need to verify your financial information and submit your loan for preliminary underwriting. A pre-approval takes a little more time and documentation, but it also carries more weight.
Which is better? Think of pre-qualification as a preliminary step and pre-approval as the green light signaling that you’re ready to start your home search. When sellers review your offer, a pre-approval means you’re a serious buyer and your lender has already started the loan process.4. How much home can you afford?
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, that means you can afford a $210,000 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, and save for other financial goals, like retirement.5. How much should you save for a down payment?
We recommend putting at least 10% down on a home, but 20% is even better because then you don’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 the market recovers.
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. How do you know which home mortgage option is right for you?
With so many mortgage options out there, it can be hard to know how the differences 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