FAQ’s

Learn about rates & mortgages

As someone who is interested in the world of finance and real estate, you may find it beneficial to dive deeper into the topic of rates and mortgages.

Pre-qualification is the first step in the mortgage process where a lender looks at your basic financial information to estimate how much you might be able to borrow. It’s usually a quick process and doesn’t require in-depth paperwork. It gives you an idea of what you can afford. Pre-approval, on the other hand, is a more detailed process where the lender checks your credit and verifies your financial documents to give you a stronger idea of what you can borrow.

The down payment is typically a percentage of the home’s price. Most people put down 20%, but there are loan programs where you can put down as little as 3% or even 0%. It depends on the loan type, your credit, and other factors. A larger down payment can also help you avoid extra costs like private mortgage insurance (PMI).

Interest rate is the percentage the lender charges you to borrow the money. APR is a broader cost that includes the interest rate plus any additional fees (like loan origination fees). So, the APR gives you a better idea of the total cost of the loan.

Typically, it takes about 30 to 45 days to get a mortgage once you’ve found a home and submitted your application. However, the timeline can vary depending on the lender, your situation, and the complexity of the loan.

A fixed-rate mortgage has the same interest rate throughout the life of the loan, meaning your monthly payments stay the same. An adjustable-rate mortgage (ARM) has an interest rate that can change after a certain period, so your payments might go up or down over time.

Most lenders want to see a credit score of at least 620 to 640 for conventional loans, but there are options available for lower scores, especially with government-backed loans like FHA. A higher credit score can help you get a better interest rate, though.

Your debt-to-income ratio (DTI) is the percentage of your monthly income that goes toward paying off debts. Lenders use this ratio to determine how much of your income is already committed to debt payments and how much room you have left for a mortgage. A lower DTI generally means you’re more likely to be approved for a mortgage, and most lenders prefer a DTI of 43% or lower.

For self-employed borrowers, gross income is your total income before taxes and other deductions, while adjusted gross income (AGI) is your income after deductions, like business expenses, retirement contributions, etc. Lenders typically look at your AGI to assess your ability to repay the loan, as it reflects the income available after necessary expenses.

Your down payment is the amount of money you pay upfront toward the cost of the home. Closing costs are additional fees that come with the mortgage process, like appraisals, loan origination fees, title insurance, and other administrative costs. Closing costs typically range from 2% to 5% of the home’s price, and you’ll need to pay them at the closing table along with your down payment.

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