Frequently Asked Questions
Lenders consider many factors in evaluating your loan application, but they usually focus on four areas:
- Income and debt: how much money you make and what other bills you have to pay helps the lender determine whether you can afford to make mortgage payments.
- Assets: the lender needs to make sure you have enough money to cover the costs of buying a home.
- Credit: whether you've met other financial obligations helps the lender predict if you can realistically repay your mortgage.
- Property: the home you want to buy must be worth enough for an institution to lend you the money.
Your credit history is only one factor in qualifying for a loan, and in some cases having occasionally made a few late payments shouldn’t prevent 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.
Closing costs vary based on a number of factors, including the lender, mortgage type, purchase contract, and location, but they usually include the following:Lender fees
Your mortgage company may charge for expenses related to making the loan, including an appraisal fee, a credit report fee, origination points, and discount points.
Third party fees
Charges for services not provided by your lender often include the settlement fee, title insurance, and attorney's fees.
Certain mortgage costs must be paid to your lender in advance. The most common of these are pre-paid interest, hazard insurance, and deposits to set up an escrow account.
To find out if paying down points make sense for you, first figure out how much lower your monthly payments would be if you did pay down a point or two. Then, calculate how long it will take for those monthly savings to add up to the cost of the points.For example, if it would take five years to break even and you're planning to live in your home for 10, then paying discount points would be a smart financial move.
A fixed rate is usually recommended 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, on the other hand, makes better sense if you plan on moving before the rate adjustments begin, or if you are buying when rates are relatively high.
Locking your interest rate means your lender guarantees the rate on your loan even if market rates change before closing. Most lenders will 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?
For most borrowers, each monthly mortgage payment goes toward the following:
- Principal, which is the total outstanding balance of the loan
- Interest, which is the cost of borrowing money
- Taxes, which are levied on the property by the local government
- Insurance, which protects the owner and the lender from losses caused by fire and natural hazards