Question 1

1. Do I need great credit to get a mortgage?

Accepted Answer

Not necessarily, but it will certainly help. It is possible to get a conventional mortgage with a FICO credit score as low as 620, and you can obtain a higher-cost FHA mortgage with a score in the 500s. However, be aware that the lower your score, the higher your interest rate will be. You can find a current list of mortgage rates broken down by credit score here. On a $250,000 mortgage, the difference between a 620 credit score and an "excellent" 760 adds up to more than $86,000 in interest savings over the life of a 30-year loan.

Question 2

2. How much of a down payment do I need?

Accepted Answer

The short answer is that you can get a conventional mortgage with as little as 3% down, an FHA loan with 3.5% down, and a VA or USDA loan with no money down at all. However, with a conventional or FHA loan, you'll have to pay private mortgage insurance, aka PMI, if your down payment is less than 20% of the home's sale price (Those payments won't be a permanent fixture in your monthly payments, however. Once the loan-to-value ratio on your mortgage falls to 80%, you can ask your lender to drop them. And even without your request, lenders are required to cancel PMI when the loan-to-value ratio drops to 78%).

Question 3

3. What are closing costs, and how much should I expect them to be?

Accepted Answer

The term "closing costs" refer to all of the charges you'll need to pay before your loan is completed. This can include origination fees, title insurance, prepaid escrows, and more. Closing costs can vary significantly, but generally, expect to pay around 2% to 3% of the home's price in closing costs.

Question 4

4. Should I choose a fixed-rate or an adjustable-rate mortgage?

Accepted Answer

When interest rates are historically low, like they are now, a fixed-rate mortgage makes good financial sense. Not surprisingly, the vast majority of mortgages originated today are fixed-rate. In fact, only about 3% of buyers are choosing adjustable-rate loans.

That said, while a fixed-rate mortgage is the best choice for the majority of homebuyers, there are some circumstances where an ARM may be better. For example, if you expect to sell the house before the fixed-interest period ends and the rate starts to float, an ARM could end up saving you thousands of dollars. Or, during periods of falling interest rates, an ARM can allow you to get a low initial rate, and will save you money later if rates drop further.

Question 5

5. Should I "lock" my interest rate?

Accepted Answer

A rate lock means that you're guaranteed today's mortgage interest rate for some predetermined period, typically 30 to 60 days. If interest rates have been trending upward, it's generally a good idea to lock in your rate. While the prevailing mortgage rate doesn't usually make a big move in a month or two, it's certainly possible.

Question 6

6. What type of mortgage is best for me?

Accepted Answer

There are several different types of mortgages to choose from. A conventional mortgage is tougher to qualify for credit-wise, but an FHA loan can be costlier. If you're a veteran, a VA loan could be the best option for you, and if you plan to buy a home in a rural area, a USDA mortgage could give you a no-money-down option.

Question 7

7. What are discount points, and should I pay them?

Accepted Answer

Discount points are money that you pay up front on your mortgage in exchange for a lower interest rate. One "point" is equal to 1% of the loan amount, so on a $200,000 mortgage, one discount point would be $2,000. Discount points are tax-deductible, and mathematically, if the interest savings over the life of the loan is greater than the points paid, it can be worth it. A mortgage calculator can help you determine whether discount points are a good idea by comparing the effect of various interest rates on your mortgage.

Question 8

8. Should I get a 15-year or 30-year term loan?

Accepted Answer

This depends on how much you want to stretch your budget. If you can afford the higher monthly payments, a 15-year mortgage usually comes with a better interest rate than a 30-year version. Not only will you pay off the house quicker, but you can save a tremendous amount of interest. On the other hand, a 30-year mortgage will cost less per month, allowing you to afford a bigger or nicer house, or one in a better location.

Question 9

9. What documentation should I gather?

Accepted Answer

Your lender may ask for many different items, but in general, be prepared to show all of the following:

Income verification (Last two years' tax returns, W-2s, 1099s, and your last few pay stubs)
Drivers' license and Social Security card (or alternative ID)
Bank statements
Proof of funds to close (and an explanation of where they came from, if it's not obvious)
If some or all of your down payment is coming from a gift, you will need  gift letter from the source of the funds that confirm they are gift, not a loan.
10. What is a pre-qualification?
A pre-qualification is a basic review of your finances to determine if you would qualify for a mortgage. In general, a pre-qualification is based on unverified information you provide and does not include a credit check or any documentation, and is therefore not a firm guarantee of a loan.

Question 10

11. What is a pre-approval?

Accepted Answer

Unlike a pre-qualification, a pre-approval can be a highly useful tool in the homebuying process. It's essentially the same thing as applying for a mortgage, just without a specific home attached to it. As part of a pre-approval, a lender will check your credit, verify your income and employment, and commit to lending a certain amount of money. A pre-approval can show sellers that you're serious about buying a home, and that you're likely to be able to follow through on a bid, and close on their property.

Question 11

12. What is an escrow account?

Accepted Answer

When you obtain a mortgage, you'll probably be asked to put money into an escrow account to guarantee the lender that the ongoing expenses of owning the property will be handled -- specifically taxes and insurance. You'll pay a lump sum into the escrow account at closing (also known as your "prepaids"), and add to it further with each of your monthly mortgage payments.

Question 12

13. Why does it take so long to close a mortgage?

Accepted Answer

Mortgages tend to take at least 30 days to originate, and many first-timers don't expect this much of a waiting period. The short answer is that a lot of things need to happen between you submitting your mortgage application and you taking ownership of your home.

Just to name a few: You'll need to gather documentation for your lender (and they'll always come back and ask for more, believe me); you'll want to schedule and complete a home inspection; the seller may need time to complete repairs; and the loan needs to make its way through underwriting. It's a lengthy process. I've bought three homes in my life, and I can tell you firsthand that it's a lot to get done, even within a 30-day window.

Question 13

14. How is my mortgage payment determined?

Accepted Answer

Depending on your situation, there are typically three or four parts of your mortgage payment:

PURCHASE

Customized purchase plan made for you

Strategize your finance

Step 1

Step 2

Step 3

Step 4

STEP 1

Discuss your situation with a professional

STEP 2

Get pre-approval from Mortgage Loan Originator

STEP 3

Purchase a property and register for the loan

STEP 4

Final approved and close your home

Start your mortgage with Delight Funding today