Your Mortgage: Frequent questions answered

It’s hard to believe that the summer is almost over. In preparation for fall, I thought it would be a good opportunity to share some of the most frequently asked questions and answers regarding mortgage loans. The fall is typically an active time of year in real estate and this year is expected to be busier than usual. Supply and demand slowly is shifting back into a more balanced mix and interest rates are starting to level out, encouraging people to buy and sell homes. 

Frequently asked questions:

How long will a pre-approval take to get done?

Typically, between 30 and 60 minutes. This process includes an introductory conversation, a credit check and verification of income and possibly asset documents. The more organized you are the better. Please stay away from online approvals. It is well worth the time to visit with a knowledgeable loan officer. 

Will my scores drop if my credit is checked?

Most likely not. If you don’t have your credit checked but a few times every 90 days and if you have good credit habits you should not worry about a credit check for a mortgage pre-approval.

Why do I need to get pre-approved?

For many reasons. First, it helps you find out your qualifying ability and helps target price and payment amounts. Secondly, it shows real estate agents and sellers that you are serious and qualified. Additionally, it helps uncover any potential underwriting challenges early. 

Do I pay closing costs in addition to my down payment?

Yes. Despite what you hear, see or read there is no such thing as a cost-free loan. There are many ways that costs can be paid for but costs are never non-existent. Costs can be paid by buyers, sellers and/or lenders. 

Can I buy a house before I sell one? 

Yes. You must qualify for both payments. If you planned on using equity from your current home to make the down payment a new home, you can utilize a re-cast option.

When should I start a pre-approval process?

It’s never too early to start this process. Even if you are at the point of curiosity but not yet serious … you should still make the call. Getting the right information is important for when you become more serious. 

Why do I have to pay insurance at closing if it’s also included in my payment?

Insurance is pre-paid and lenders require the home to be protected throughout the entire year. In considering a purchase transaction, you do not have ownership of the property until you close; therefore, no policy is yet in effect. This results in pre-paying it in full at the time of closing to cover the property until the policy renews. Part of your monthly payment contributes to the insurance escrow account to be used to pay the policy again upon renewal. 

What are discount points?

This is a charge for when you opt to buy down to a lower rate; meaning you are purposely paying extra to get a lower rate than what the bank offers. Deciding to pay discount points should be based off how long you plan on owning the property. 

How long does it take to close on a loan?

In most situations 20 to 40 days. Rarely should a loan take longer than this unless it’s a planned extended closing. 

When does private mortgage insurance (PMI) drop off?

Mortgage insurance will be removed when your loan-to-value is at 78 percent of the purchase price or appraised value. If you feel you have 20 percent prior to that point in time you can make a request for the bank to remove it at that time. 

What is loan-to-value?

It’s the mathematical relationship of your loan amount compared to the value of your home as determined by either the purchase price or the appraised value. It’s expressed as a percentage and calculated by dividing your loan amount by the value. 

Every borrower is different and there are many different questions and scenarios that exist. These questions listed are simply a handful that are frequently asked. It’s important that you know all that you can, so feel free to contact our team at FountainMortgage.com. 

This weekly Sponsored Column is written by Fountain Mortgage. Located in Prairie Village, Fountain Mortgage is dedicated to educating, and thus empowering, clients to make the best financial decision possible for their situation. Contact Fountain today.

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