📄 Home Mortgage Loan FAQ

Unless you have cash on hand to purchase a home, you’ll need to secure a mortgage loan to finance the house. Here are some home mortgage loan frequently asked questions (FAQ) answered!

A bank, credit union, or mortgage lending company provides the money needed to pay for the purchase of a property when you secure a mortgage loan. The money is loaned to the buyer with an agreement to repay the loan with interest through monthly installment payments.

The terms of the mortgage loan vary depending on the amount financed, interest rates, credit score, and length of the repayment period. There are different types of mortgage loans with special conditions that a buyer may qualify for if they meet all requirements.

Home buyers secure traditional mortgage loans through a bank, mortgage lender, or credit union. To qualify for one of these loans, you may need a down payment that is up to 20 percent of the cost of the home.

Buyers unable to make a down payment could qualify for a loan through the Federal Housing Administration (FHA). The FHA does not provide the loan, but they do guarantee the successful repayment of the loan to the lenders who work with them. These loans sometimes have higher interest rates.

There are two choices when it comes to interest rates on mortgage loans. A variable interest rate causes the monthly payment to fluctuate as interest rates change over time, which means a low-interest rate could mean a smaller mortgage payment, but a higher interest rate increases that payment amount.

With a fixed mortgage rate, the mortgage loan amount remains consistent over time throughout the term of the loan. The interest rate is locked in at the time the contract is signed.

You may want to read: 6 Steps to Buying a Home

The three leading credit reporting agencies are TransUnion, Experian, and Equifax. Order a copy of your credit report from each of these agencies once a year due to the Fair Credit Reporting Act.

Why order all three? Each may contain different information, so it’s best to compare all reports when checking for errors.

A mortgage loan pre-approval is a great idea when you’re beginning to look at homes for sale. Keep in mind that a pre-qualification and a pre-approval are two different things. A pre-qualification shows that you may be eligible for a loan based on information presented but there is no hard inquiry done on your credit and the loan is not certain.

The pre-approval is beneficial because it gives you a target price range for buying a home, which can keep you from setting your sights on a home you can’t afford and being disappointed. The pre-approval letter could impress a home seller and give you an advantage if they receive multiple offers.

If your offer competes with another buyer’s offer and they don’t have a pre-approval on hand, the seller may choose your offer because it shows you are serious about the purchase and can move forward if the offer is accepted.

The underwriting process requires the lender to process documents from the potential loan candidate. The lender builds a file for the borrower that contains all the documents for the underwriter.

The underwriter looks at your credit history, the home’s appraisal, and your employment situation. They also verify your debt to income ratio, do a title search, and make sure all conditions of the loan are met.

The completion time for the underwriting process depends on the loan type for which you’re applying. FHA loans have strict guidelines, and the approval may take longer than that for conventional loans. Expect to wait anywhere from a few days to several weeks.

You may want to read: Tips for First Time Home Buyers

Increase your chances of getting through the underwriting process without delays.

• Supply all required documents.
• Do not apply for credit cards.
• Communicate quickly with the lender.
• Be honest about finances.

Many borrowers feel anxiety during the mortgage loan underwriting process. You will do fine if you follow the advice of your lender and provide everything requested.

One document that the lender is required to provide you with at least three days before the loan closing is called a closing disclosure form. This form states essential details about your loan that include terms, monthly payments, closing costs, and escrow account details.

The closing disclosure form gives details on who is responsible for paying closing costs. A chart provides a comparison of the actual costs versus the amount on the Loan Estimate paperwork. The document explains things like if the loan is assumable, if there is a late fee penalty, and if the lender has a security interest in the property.

The closing disclosure form provides complete transparency in explaining the terms and conditions of your loan. If there’s something on the form which you do not understand, contact your lender for an explanation.