Your Home Loan Questions and Answers
Buying a home can be complicated for people going through the process for the first time. At First Preferred Mortgage Company, we are here to simplify the process and provide answers for your most common home buying questions.
Applying for a mortgage
How do I get pre-approved?
What happens once I am pre-approved?
What will First Preferred Mortgage Company look for when I apply for a mortgage?
What if I've had credit problems?
Buying your home
What is the minimum down payment I can make on a home?
What closing costs will I have to pay?
What is title insurance?
What is PMI (Private Mortgage Insurance)?
Understanding your home loan
What will my mortgage payments include?
Should I choose a fixed-rate or adjustable-rate loan?
How and why do interest rates change?
Should I pay discount points?
Should I lock my rate?
How do I get pre-approved for a mortgage?
Mortgage pre-approval means you have received a loan commitment from your mortgage company before you have found a home, based on a review of your credit and finances. This helps you shop for houses within your price range, and shows sellers that you are qualified to buy their home.
Getting pre-approved for a mortgage is simple. You can complete a pre-approval application right now on our Web site. Once we receive your application through our secure online portal, we will contact you the following business day with a preliminary loan decision. It's that easy.
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What happens once I am pre-approved?
You are ready to buy a home! Once we offer you a preliminary approval, one of our mortgage experts will immediately schedule a meeting to discuss your approval in greater detail and answer any questions you may have. If you have not already identified a realtor to work with, we can also connect you with some of the top realtors in your area who will go out of their way to help you find your dream home.
If your financial information changes after your pre-approval, it is very important to inform us since that may affect the amount or type of mortgage you can receive.
To apply for pre-approval, click here.
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What will First Preferred Mortgage Company look at when I apply for a mortgage?
Lenders consider many factors in evaluating your loan application, but we typically focus on four areas:
- Income and debt – First Preferred determines whether you can afford to make mortgage payments based on how much money you make and what bills you have to pay.
- Assets – This helps make sure you have enough money to cover the costs of buying a home and establishes a track record of savings.
- Credit – Your history of making timely payments for other financial obligations will help us predict whether you will repay your mortgage.
- Property – The home you want to buy must have enough value to serve as collateral for the mortgage. The appraisal is done for your protection.
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What if I've had credit problems?
Your credit history is only one factor in qualifying for a loan. If you've made a few late payments, it shouldn't disqualify you from buying a home. Someone who consistently makes timely payments will have more financing options than someone with credit issues. In the event of serious credit issues, there is no better way to solve the problems than tackling them head on with the help of a professional.
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What is the minimum down payment I can make on a home?
There is no standard minimum down payment required for buying a home. Many first-time buyers believe they must put down as much as 20% of a home’s purchase price in cash. That may have been true in the past, but many mortgage options available to today’s home buyers require little or no down payment.
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What closing costs will I have to pay?
Closing costs vary based on a number of factors—including the mortgage type, purchase contract, and location—but they usually include the following:
- Mortgage fees – Your mortgage may have charges for expenses related to making the loan, including an appraisal fee, a credit report fee, origination and discount points.
- Third-party fees – These include charges for services not provided by First Preferred, such as settlement fees, title insurance and attorney fees.
- Prepaid items – Certain mortgage costs must be paid in advance. The most common of these are pre-paid interest, hazard insurance and deposits to set up an escrow account.
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What is title insurance?
It is a policy provided by the title company guaranteeing the accuracy of the title work done on your home at the time of purchase. As a buyer, you are required to purchase a lender's policy of title insurance as part of your standard closing costs, which protects the mortgage company.
If you want protection against legal issues related to the title of your home, you would also need an owner’s policy of title insurance. This coverage typically is paid for and provided by the seller of the home. Please check with your realtor to ensure this is the case with your transaction.
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What is private mortgage insurance (PMI)?
If your down payment equals less than 20% of your new home's purchase price, you typically are required to buy private mortgage insurance (PMI). This coverage protects the lender in case you were to default on your mortgage. The lower your down payment, the more you can expect to pay for PMI.
This insurance is paid for by you, the borrower. In some cases, there may be ways for you to avoid paying PMI at the time of purchase, or you may be able to stop paying for coverage at some point in the future.
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What will my mortgage payments include?
For most borrowers, each monthly mortgage payment pays for:
- Principal – The total outstanding balance on your home.
- Interest – The cost of borrowing money for your mortgage.
- Taxes – The amount levied on your property by local government.
- Insurance – Coverage that protects you and the lender from potential losses caused by fire and natural hazards
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Should I choose a fixed rate or adjustable rate loan?
Most mortgages have either a fixed interest rate or an adjustable interest rate, and each option has benefits that should be considered.
With a fixed-rate mortgage, the interest rate never changes and your payments remain stable throughout the life of your loan. With an adjustable-rate mortgage (ARM), the interest rate changes at regular intervals—usually once every year. For most ARM options, rate adjustments begin after an initial period—usually one to 10 years—during which the rate is fixed.
A fixed-rate mortgage usually is recommended if you plan to stay in your home for a long time and are buying when interest rates are relatively low. An ARM is usually recommended if you plan to move before the rate adjustments begin, or if you are buying when interest rates are relatively high.
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How and why do interest rates change?
Many people are surprised to learn that rates change on a daily, and sometimes hourly, basis. Interest rates fluctuate in response to changes in the financial markets. The bond market is generally a good indicator of the general trend of interest rates. First Preferred Mortgage Company watches the mortgage-backed securities on a constant basis, ensuring you get the very best in rate and service.
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Should I pay discount points?
Discount points are prepaid interest, which you can pay at closing in exchange for a lower interest rate on your mortgage. Paying discount points, each of which is equal to 1% of the loan amount, is often called “buying down” your rate.
Paying points can make sense depending on how long you plan to stay in your home. First, we will look at how much lower your monthly payments will be if you pay for discount points. Then calculate how long it will take for the monthly savings to equal the cost of the points. If it would take five years to break even and you’re planning to live in your home for 10 years, paying discount points may be a smart move.
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Should I lock my rate?
Locking your interest rate means First Preferred guarantees your rate for a given period of time on your loan, even if market rates change before closing.
Whether you should lock your interest rate depends on whether you expect rates to rise or fall before you close on your home. No one knows for sure which direction rates will go at a given time, so it’s difficult to make a reliable prediction. It helps to keep track of announcements from the Federal Reserve Board, whose monetary policies have an effect on mortgage rates, and to talk to your financial advisor about what may happen in the near term.
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