Many homebuyers interested in getting a mortgage often encounter questions and concepts during the mortgage process that they may not fully understand. This Q&A section is created to answer some of the most common questions and concepts that you will likely see when learning about mortgages.
Most types of mortgages require a minimum amount of down payment, except for VA and USDA programs. You may also be eligible for down payment assistance programs that can help you towards minimum down payment requirement on some of the loan programs. Please click here to learn more.
On Conventional Mortgages, your lender will require you to pay a Private Mortgage Insurance (PMI) premium as part of your monthly payments if you put down less than 20% of the purchase price of the property. There are government loan programs available with less stringent down payment requirements as well, such as an FHA loan that will require only a 3.5% down payment, but again, these programs also require mortgage insurance premiums. Finally, keep in mind that the amount of down payment you put down for a house will also affect your Loan-to-Value (LTV) ratio, which could then affect the amount of loan you are able to qualify for, or whether or not you will qualify at all.
Your mortgage interest rate is dependent upon a number of factors, including, but not limited to your credit score, size of down payment, loan purpose, occupancy, LTV ratio, and DTI ratio. Different mortgage products have different guidelines that may also indirectly affect what rates you can get.
The base interest rate in the market is determined by the secondary market through competing U.S. Treasury bonds, the price of which is determined by the market demand. All these factors combined will determine what interest rate you will get for your mortgage at a particular time. When you are ready to secure your interest rate during your mortgage application, you should contact your licensed loan officer to go over the lock process in more detail.
The lender is required by law to provide to you a preliminary estimate after you submit your application.
There are a few insurance types that are required when you get your mortgage, and each has a unique purpose.
The term escrow can refer to two things: the escrow process or an escrow account. The escrow process is an important part of the mortgage origination where a third party company is assigned to keep control of all funds and documents for all parties (seller, buyer, lender) in the transaction. Funds are sent to the escrow company to be processed and verified, and the escrow company, upon disbursement, prepares a settlement statement summarizing the distribution of funds and the terms of your mortgage.
An escrow account usually refers to an account for a mortgage by a lender to hold funds that will be used to pay towards property taxes and insurance, including mortgage insurance. The payments made from an escrow account will be shown in your monthly mortgage statements, so you don’t have to worry about managing these payments separately.