To continue our financial home buying education, Ryan Homes at Brunswick Crossing answers your top questions about home mortgage loans:
How do I qualify for a home loan?
Your ability to qualify for a loan depends on your income, current monthly obligations, assets, and credit score. After your mortgage officer decides that you’re fit for a home loan, you need to provide proof of where you work, your income, any debt and assets, and your potential down payment.
Once proof is received, you and your mortgage officer discuss possible options. This may include conforming or non-conforming conventional loans; an FHA, VA, USDA loan; or a state-funded option like the Maryland Mortgage Program.
Can I get a home loan without a credit score?
According to Dave Ramsey, an author and radio host about financial independence, it’s possible to qualify for a home loan without a credit score -- only if you’ve paid off all of your debt.
“If you apply for a mortgage without a credit score, you...need to go through a process called manual underwriting. [It] simply means you’ll be asked to provide additional paperwork, and the underwriter will review your documents personally.”
Manual underwriting may extend the loan process, and not every mortgage lender offers this option. However, buying a new home without any debt is a great way to set up your financial future.
What’s the difference between pre-qualification and pre-approval?
Pre-qualification isn’t the same as pre-approval. Many people, especially first-time home buyers, interchange these terms.
Getting prequalified for home mortgage loans doesn’t require a verbal or written commitment from you or the lender. It’s an informal, informative estimation of how much you qualify to borrow for a new home based on a variety of existing financial factors.
Getting pre-approved is the next step in the homebuying process (after pre-qualification) and requires a formal application and financial documentation.
Like pre-qualification, pre-approval isn’t mandatory. Similarly, it doesn’t guarantee an approval of a home mortgage loan for your new home, but it’s a good idea to go through both steps to gauge a better understanding of your buying abilities.
Does a prepayment penalty exist on this loan?
According to Bankrate, “Some lenders charge a penalty if you prepay on the mortgage. Some apply the penalty only when you refinance or reduce the principal balance by more than a certain percentage. Find out the penalty specifics and whether your lender will give you a lower interest rate if you choose a loan that comes with a penalty.”
How much should I save for a mortgage down payment?
It depends on the type of mortgage loan and your overall financial picture, but you should have at least 4 to 6 percent of the final price of the home. Some mortgages, like USDA and VA, require no down payment but closing costs to pay.
In Maryland, you need about 3.5 percent of the final price to cover closing. Cash buyers still pay closing costs at a lower rate, because not all fees apply when purchasing with no mortgage.
Tip: Home builders often help with closing costs, if the builder’s preferred lender is used. Ryan Homes at Brunswick Crossing offers help to cover part of your closing costs when you use NVR Mortgage
What does a monthly mortgage payment include?
Like other long-term loans, monthly mortgage payments don’t all go toward the principal balance. It goes toward principal, interest, homeowners insurance, property tax, and private mortgage insurance (if you put less than 20 percent on your down payment).
What will my interest rate be?
Talk to your lender about a ballpark number for your interest rate, because it’ll differ for every homebuyer. What is the annual percentage rate? Is an adjustable- or a fixed-rate mortgage best for your financial situation?
Which home mortgage loan is best for me?
It all depends on your financial situation and comfortability. No one-size-fits-all option is available. Every homebuyer must discuss all home mortgage loan options with an experienced, educated lender.
Be transparent with your financial situation. When you provide the most accurate information to the lender, you get a more accurate estimation of your monthly mortgage payments, interest rate, and so on.
What do I pay during closing costs?
Closing costs are a uniform name that encompasses property tax, homeowners insurance, and mortgage interest escrows; capital contribution to a homeowners association; loan origination, appraisal, transfer and recordation, process and underwriting, and title and title insurance fees; and upfront private mortgage insurance.
How long does it take for a home loan to close?
It varies for every homebuyer, but ask your lender what you should and shouldn’t purchase in the meantime. Can you buy new furniture? Should you open a new credit card?