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Our top 15 mortgage FAQs can help clear up all your home loan questions

mortgage faqs

If this is the year you plan to buy a house, we know you have questions. Shopping around for homes online is the fun part. But stuff starts to get real as soon as you delve into the fine print and begin researching your options in a mortgage. Getting all your mortgage FAQs answered early on can help you choose the right lender – making it that much easier for you to prequalify.

We want you to ask questions, and here’s why

One of the worst things you can do when you’re buying a house is to go into your mortgage blind. As we’ve been telling our buyers for more than 29 years, buying a house might very well be the biggest financial decision you ever make. Asking the tough questions – and even the easy questions that seem obvious – is what’s going to help you make a smart investment.

For the homebuyer, questions are your number one comparison tool. You can quickly suss out a lender, or a loan product, based solely on the questions you ask and the answers you receive. That’s why we find it particularly surprising that almost half of all borrowers (that’s you) don’t shop around when they’re buying a house. The Consumer Financial Protection Bureau reports, based on their 2013 survey, that a whopping 47 percent of buyers don’t compare.

When you’re shopping around, we want you to come to us so we can answer your questions and help you find a loan that’s the right fit. As the Consumer Financial Protection Bureau pointed out, this is the smartest move you can make as a buyer. We’re the kind of lender that’s going to educate you instead of giving you a rate quote you may not know what to do with. We’re here to help you assess and compare through each step of the loan process. Which is why we’ve rounded up our most frequently asked questions, just for you.

Getting your questions answered from a knowledgeable lender is going to help you make the right choice in a mortgage.

The 15 biggest mortgage FAQs answered, all in one place

mortgage faqs
Ready? Here we go – knowing these 15 mortgage answers could make you a more confident buyer:

Get started

1. How can I find out how much home I qualify for?

  • You can use our online prequalification process to work with a loan officer and find out approximately how much you can borrow before you start shopping for a house.
  • Once you have that number, you can provide more information and allow your loan officer to run your credit report to verify your assets and income.
  • Your loan officer can also help you obtain a complete written credit approval, subject to an appraisal, before you make an offer on a house.

If you’re short on time, simply input your information into our free LoanFly app to find out how much house you can prequalify for.

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2. Is there anything I shouldn’t do before I get prequalified?

  • Don’t start shopping for a new home until you’ve been prequalified.
  • Don’t pack or ship any important documents, such as tax returns, bank statements, pay stubs, and W-2s.

**Avoiding these actions before and during the financing process can prevent any unnecessary confusion.

3. Is there anything I shouldn’t do while I’m getting prequalified?

  • Don’t suddenly pay off all your debts.
  • Don’t apply for new credit cards.

**Avoiding these actions before and during the financing process can prevent any unnecessary confusion.

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4. What are income and debt ratios?

  • Income ratio: Your total monthly housing expense divided by your pre-tax monthly income.
  • Debt ratio: Your total monthly housing expense plus any recurring debts, i.e., car payments, monthly minimum credit card payments, and other loan payments, divided by your monthly income.
  • Standard loan underwriting guidelines suggest a max 28 percent income ratio and 36 percent debt ratio, which may vary based on personal finances, loan program, and down payment.

5. What are cash reserves?

  • Cash reserves: The extra funds available to you after your loan closes.
  • These funds reflect your ability to make monthly mortgage payments, and different loan programs may have different cash reserve requirements.
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6. What is mortgage insurance?

  • This insurance helps protect the lender if a borrower forecloses on their property.
  • Borrowers pay for the mortgage insurance, allowing lenders to grant loans they might not have otherwise.
  • Mortgage insurance may be required on some loans when a down payment is less than 20 percent.

Do you have more questions about your mortgage? Our user-friendly learning center has answers.

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7. What are mortgage points?

  • Also called discount points, mortgage points work as a one-time fee you can opt to pay if you’d like to get a lower interest rate.
  • One mortgage point equals one percent of your total loan amount and may drop your interest rate one-eighth to one-quarter percent lower.

8. What’s an APR?

  • Annual Percentage Rate: The cost of your total loan credit calculated into an annual interest rate, also called APR.
  • The APR includes loan points and other prepaid finance charges to reflect the true yield on the loan, which is why the APR is normally higher than a loan interest rate.
  • To check that you’re getting the most competitive loan, you can compare “apples to apples,” or APR to APR, on different loan programs.
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9. Can I still get a mortgage if I have bad credit or have filed bankruptcy?

  • Having good credit helps to get a more competitive mortgage interest rate, but perfect credit isn’t required.
  • If you have a low credit score or have filed bankruptcy in the past, you can work toward improving your credit.

When in doubt, contact your loan officer. At Cornerstone, we’ll do whatever we can to help you buy a home, even if your credit is spotty.

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10. I just got a new job. How does this impact getting a mortgage?

  • Most loan programs are looking for a two-year job history in the same field — though changing jobs to move to a better position could be seen as favorable.
  • For recent college grads, you may still be able to get a home loan without a two-year work history.

11. Can I “lock in” my interest rate?

  • Yes! Get in touch with your loan officer, and they can lock in the interest rate you were quoted.
  • You’ll be provided with a written Rate and Price Determination Agreement, detailing interest rate, loan terms, and time period for the rate lock.
  • This rate lock time period may range from 10 to 60 days, depending on your projected closing date.
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12. What’s prepaid interest?

  • Just like it sounds, prepaid interest on a mortgage is paid in advance.
  • For most mortgages paid on the first of the month, you’re paying for interest accrued the previous month.
  • Depending on when you close, you may pay prepaid interest that has accrued for the days left in the month — the interest accumulated from May 15 to May 31, for example.

13. What are closing costs?

  • The extra costs paid at closing may include attorney fees, prepaid interest, insurance fees, documentation fees, and more.
  • Closing costs may vary by borrower based on your mortgage loan type, property location, and other factors.
  • You can find your closing costs broken down in your Closing Disclosure, provided by your loan officer at least three business days before your expected closing date.
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14. What should I bring to closing?

  • At closing, which normally takes place at the title company, you and any other borrower listed on your mortgage agreement will need to bring in a valid driver’s license.
  • Any funds needed at closing must be brought as a wire transfer or cashier’s check made out to the title company.

15. When will I get my money?

  • You’ll have access to your funds on the day you close on your loan — when you’ve officially bought a house.

You have your mortgage questions answered. Now what’s next? We’re happy to walk you through the process. Contact one of our loan officers today, and we can tell you how much house you prequalify for (and when you can start shopping).

For educational purposes only. Please contact your qualified professional for specific guidance.

Sources are deemed reliable but not guaranteed.