If you’re a first time homebuyer and want to start weighing your mortgage options, you’ll have much to learn. With so much at stake, you’ll want to make sure you choose the best mortgage for you now, and one that will still suit your needs years into the future.
Sometimes, first time buyers are hesitant to ask questions they may consider too basic because they don’t want to seem inexperienced to lenders, agents, or anyone else they’ll be in contact with throughout the home buying process.
So, in this article, we’ve compiled a list of commonly asked mortgage questions that first time buyers might want to ask before heading into the process of acquiring a home loan.
What is the first step to getting a mortgage?
This question may seem straightforward, however the first step can vary depending on your financial situation. For those who already have saved up for a down payment and built a solid credit score, the first step is probably contacting lenders and getting preapproved or prequalified.
However, if you aren’t sure about your credit score and haven’t saved up for a down payment (ideally, 20% of what you hope to spend on the house), then you should address those matters first.
To find a lender, you can do a simple Google search for the mortgage lenders in your area, or you can ask around to friends and family to find out their experience with their own mortgage lenders.
What does it mean to be pre-qualified and pre-approved?
If you think of the mortgage process in three steps, the first step would be getting pre-qualified. This means you’ve given the lender enough basic information for them to decide which type of mortgage you’re eligible to receive.
Pre-approval includes collecting and verifying further details. At this step, you’ll complete a mortgage application and the lender will run a credit check. Once you’re pre-approved, your file can be moved to the underwriting phase.
What are closing costs?
“Closing costs” is an umbrella term that covers all of the various fees and expenses related to buying or selling a home. As a buyer, you are responsible for paying numerous closing costs. These can include, but are not limited to, underwriting fees, title searches, title insurance, origination fees, taxes, appraisal fees, surveys, and more.
That sounds like a lot to keep track of, however your lender will be able to give you an accurate estimate of the total closing costs when you apply for your loan. In fact, lenders are required to give you a list of these costs within three days of your loan application in the form of a “good faith estimate” of the closing costs.
What will my interest rate be?
The answer to this question is dependent upon numerous factors. The value of the home, your credit score, the amount you put down (down payment), the type of mortgage you have, and whether or not you’re paying private mortgage insurance all factor into the interest rate you’ll receive. Interest rates also will vary slightly between lenders.
You can receive a fixed-rate mortgage that does not fluctuate throughout the repayment term. However, you also typically have the option to refinance to acquire a lower interest rate, however refinancing comes with its own costs.