Buying a home is a major investment. Whether this is your first home purchase or one of many, it’s important to write down any questions you may have for your mortgage lender. The more you know, the better you’ll feel about your purchase.
Our team at City Creek Mortgage wants you to have all your questions answered so that you’ll feel confident about your purchase and the terms you agree to when you sign your mortgage documents. If you are unsure of where to start, these five questions are a good starting point.
How can City Creek Mortgage help me qualify for a loan?
Several factors go into mortgage qualification. Mortgage lenders will look at your income, property, assets, and your credit report.
Not only is your credit score important, but your credit history is also a factor. In general, for loan qualification, you should assume a good baseline qualification score for a conventional loan is around 620.
Credit isn’t the only factor, however. Your debt-to-income (DTI) ratio is an essential indicator of your financial health, too. A good rule of thumb is to keep your DTI no more than about 45%, including your house payment.
What’s the difference between being prequalified and preapproved?
Even though some use the terms prequalified and preapproved interchangeably, technically, these terms mean very different things.
For prequalification, you can assume your lender may or may not pull your credit report to get an idea of the loans you qualify for. If your lender doesn’t pull your credit, you need to be forthcoming about your credit score, credit history, and debt-to-income ratio. With this information, your lender can give you the best guess at what you’re prequalified for.
In a preapproval, the lender will pull your credit. You’ll also be required to produce financial documents like bank statements, paystubs, W2 forms, and other information so that they know exactly what the top end of your budget can withstand, including an assumed interest rate. Preapprovals are undoubtedly the preferred method of approval.
How do I know how much I can afford?
It’s crucial that you understand, from the very beginning of the process, that you don’t want to purchase your way into a financial burden. Even though you’ll receive a top-end estimate of how much you can afford, that does not mean you should spend up to that top amount.
Think through all your expenses and take a look at your current income. At the end of every month, you still want to have enough money left over that you can save money for emergencies and continue to enjoy hobbies or vacations from time to time.
You should also keep in mind that purchasing a home is only a first step. Homeownership costs money, too. You’ll have maintenance costs, landscaping fees, and those unexpected repairs that can be costly – like air conditioning units. All of those things need to be considered before you max out your budget.
At City Creek Mortgage, we often counsel our clients to purchase the home that will make them happy – not full of anxiety and dread after every mortgage payment. No house is worth that!
How much should I save for a down payment on my home?
There are different trains of thought regarding down payments. There’s the required down payment for the mortgage for which you qualify, and there’s the best down payment unique to your situation.
- If you qualify for a USDA or VA loan, no down payment is required.
- Otherwise, if you are getting an FHA loan, the minimum required down payment is 3.5%.
- If you’re getting a conventional loan through either Fannie or Freddie Mac, down payments start at 3%.
Keeping all that in mind, there are lots of reasons why you might consider making a higher down payment than is required.
If you can put 20% or more down on your home, you can avoid private mortgage insurance (PMI). Otherwise, you’ll be required to make this as part of your payment until your home reaches 20% equity.
Take into consideration that you may need to make furniture purchases or invest in some upgrades before moving into your new home. So, you may need to have a little extra set aside!
Our City Creek Mortgage team advises that you should put down as much as you can afford without compromising other financial goals. The more money you can pay upfront, the less you’ll have to finance and pay over time.
What is included in my mortgage payment?
This will depend on what kind of mortgage you’ve qualified for. If you have a down payment of less than 20%, you’ll likely have an escrow account set up for taxes and insurance.
At the very least, your mortgage payment will consist of both the principal and the interest on the loan.
It may be that your mortgage payment includes property taxes, insurance, maybe even homeowners association fees. We recommend you specifically ask this question before you sign your paperwork. Be sure to ask what percentage of your monthly mortgage payment is going toward principal and interest.
About City Creek Mortgage
City Creek Mortgage is a different kind of lender. We know your mortgage is important, but we want to be sure you understand the process and are informed about finances in general, too.
Mortgage lending can feel intimidating and even overwhelming. Our team wants to alleviate all that by making you the primary focus of the process. We listen to your questions and concerns. In addition, we answer your questions and provide you with the best information available based on our professional training and years of experience.