Below, you'll find answers to some common questions about opening a mortgage loan.
Do I need a great credit score and does my spouse's matter?
In general, the best interest rates goes to those with good credit. You may qualify for a Federal Housing Administration loan with a credit score of 580 but conventional loans typically require a score of at least 620. You may qualify for an FHA loan with a score as low as 500, but your down payment will be higher, 10% versus 3.5%. Checking your credit report with each of the bureaus before you apply for a home loan will give you time to fix any errors or take care of any items that could be affecting your credit score.
Other types of loans have different requirements. A Veterans Affairs loan technically has no minimum credit score — instead it requires that lenders look at a potential borrower’s entire profile. U.S. Department of Agriculture loans, primarily designed for those in rural areas, typically require a credit score of at least 640.
If your spouse submits their name as a co-applicant, the lender will consider their credit score and credit history.
What is the difference between pre-approved and pre-qualified?
A homebuyer is pre-qualified when they have provided the lender with the basic information to determine which loan program they may qualify for. When a homebuyer is pre-approved, the lender has collected, verified and presented the information needed for underwriting and approval.
What is the difference between interest rate and APR?
Your interest rate is the monthly cost you pay on the unpaid balance of your home loan. An Annual Percentage Rate (APR) includes both your interest rate and any additional cost or prepaid finance charges such as the origination fee, points, private mortgage insurance, underwriting and processing fees (your actual fees may not include all of these items). While your interest rate is the rate at which you will make your monthly mortgage payments, the APR is a universal measurement that can assist you in comparing the cost of mortgage loans offered by different mortgage lenders.
What is Private Mortgage Insurance (PMI) and how does it benefit me?
PMI or Private Mortgage Insurance is provided by a private company to protect the mortgage lender against losses that might be incurred if a loan defaults. It can make a big difference in how quickly your mortgage loan is approved and how much money you spend on a down payment. It is required if the loan amount is more than 80% of the home’s value.
This insurance benefits lenders, but it also helps homebuyers. Without mortgage insurance, many lenders would require a down payment of at least 20% of the loan amount. We understand that even if you have enough money for a large down payment, you may prefer to use it for other purposes. And if you don’t have a 20% down payment, it can take a long time to save it. While you’re saving, the price of your dream home is likely to rise – perhaps faster than you can save. Private Mortgage Insurance can be a big help if you’re like most borrowers in this type of situation.
What is included in the closing costs?
Closing costs include items like appraisal fees, title insurance fees, attorney fees, pre-paid interest and documentation fees. These items are usually different for each customer due to differences in the type of mortgage, the property location and other factors. You will receive a good faith estimate of your closing costs in advance of your closing date for your review.
Do I need a large down payment?
It depends on the situation. Traditionally, a borrower is expected to bring about 20% to the table. However, buyers may be able to get away with down payments as low as 3% through special programs. One benefit of providing at least 20% at closing is the absence of private mortgage insurance (PMI).
Buyers who put down less may have an additional fee added to their monthly mortgage payment to cover the PMI until they’ve built 20% equity in their home. Learn more about ways to avoid PMI.
How do I find out what my interest rate will be?
Rates are based on a variety of factors such as the loan purpose, your credit history and ability to repay, the value of the collateral and the loan amount. We provide a variety of options to lock in your interest rate, meaning that it won’t go up (or down) between the time you lock it and the time that you close on your home. If your mortgage is fixed-rate, your interest rate will remain the same throughout the life of the loan. Mortgage interest rates fluctuate constantly, so it is important to lock in your rate at the appropriate time.
What can I expect to be included in my monthly payment?
If you have a fully amortizing mortgage, portions of your monthly mortgage payment go toward loan principal and interest. Interest-only mortgage payments include only the interest that is due on the outstanding principal balance. If your mortgage carries mortgage insurance, a portion of your monthly mortgage payment will pay this also, unless the lender has paid your mortgage insurance or you have paid your mortgage insurance upfront. If you have set up an escrow account for your mortgage, then portions also go toward your property taxes and homeowners insurance.
What is an escrow account?
An escrow account is a separate account that holds funds for the purpose of paying bills such as homeowner's insurance and property taxes. The lender collects the funds to be deposited into the account each month along with your monthly payment and then pays the bills for you when they come due. By taking the annual amounts charged for homeowner's insurance, property taxes and other annually paid items and dividing them by 12, a payment amount is determined and is added to your monthly principal and interest payment. Spreading the cost of these expenses over 12 months makes it easier for you to budget those expenses and you won't have to come up with additional cash when bills are due. For some loans, escrow accounts are a requirement.
How do I get approved for a mortgage?
After filling out an application, you’ll have to provide a variety of information which can be found on our Mortgage Loan Checklist page.
Once you provide the necessary documents, the lender will review your information and pull your credit report and score. If you meet their requirements — usually a minimum credit score, cash for a down payment and low debt-to-income ratio — you may be approved. There are a number of things that can derail your home purchase (even after a preapproval), so don’t open any new lines of credit or spend a significant amount of money until your loan is finalized.
Apply now for a better mortgage experience.