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The FAQ's About Home Loans

We'll help you learn about key elements and terms of home loans and provide tips to make your experience rewarding.

Frequently Asked Questions to Help You Better Understand Home Mortgages

Deciding what type of home loan is your best option can be frustrating. So to help you prepare for the process, review these frequently asked questions. Once you do, you'll be ahead of the game.

What is the first thing to do in the mortgage process?

A lender's likely first action when you apply for a mortgage is to check your credit. A low credit score and credit fraud could stop a mortgage application dead in its tracks.

How do I find my credit score?

You can request a free copy of your credit report from each of the three major credit reporting agencies – Equifax, Experian and TransUnion. You’re also entitled to see your credit report within 60 days of being denied credit. It’s smart to request a report from all three credit reporting agencies because inconsistencies or inaccuracies may exist. If you spot an error, request a dispute form from the agency within 30 days of receiving your report.

What should I do if I have outstanding balances on my credit cards?

You don’t need a zero balance on your credit cards to qualify for a mortgage. However, the less you owe creditors, the better. Lenders take your debt to income ratio into consideration when determining mortgage loan approval and amounts. But even if you’re approved for a mortgage with consumer debt, it’s important to avoid new debt while going through the mortgage process.

Is it wise to shop around for home loans?

You should visit with at least three lenders. Many home buyers accept the first loan offered and don't realize that they may be able to get a better loan.

What is the difference between interest rate and APR?

The interest rate is the cost to borrow the money disbursed in the loan. The APR is the total cost of the loan over its life, including costs, points and fees.

What are closing costs and how much will I be paying?

Closing costs usually represent about 3 percent of the purchase price and are paid at the time that you close or sign the documents. Closing costs are made up of a variety of fees charged by lenders, including underwriting and processing charges, title insurance fees, appraisal costs, etc.

What are points and should I be paying them?

This is also called “buying down the rate,” which can, in turn, lower your monthly mortgage payments. A point is equal to 1 percent of your mortgage amount. Essentially you're paying some interest up front in exchange for a lower interest rate over the life of your loan. For example, if you take out a $200,000 loan at 4.25 percent interest, you might be able to pay a $2,000 fee to reduce the rate to 4.125%. Paying points makes sense if you plan to keep the loan long term. However, keep in mind that the average homeowner stays in his house only seven years.

Is it wise to get preapproved for a home loan?

Getting preapproved for a mortgage loan before looking at houses is emotionally and financially responsible. On one hand, you know what you can spend before bidding on properties. The preapproval process is fairly simple: Contact a mortgage lender, submit your financial and personal information, and wait for a response.

Should I consider a fixed-rate mortgage or an adjustable-rate mortgage (ARM)?

Many people are attracted to ARMs because they usually offer lower introductory rates, but you need to consider whether you’re comfortable with the possibility of your interest rate going up, maybe by even as much as 2 percent, in the future. With a fixed rate, your principal and interest will remain the same for the life of the loan.

What should be the amount of my down payment?

Typically, the recommendation is to make a down payment of 20 percent of the purchase price. Some lenders will allow as little as 5 percent down and with government-backed loans, such as FHA or Department of Veterans Affairs (VA) loans, it can be less. However, be careful. Lower down payment loans often require mortgage insurance and a higher interest rate, which adds to your overall cost. It is usually a good idea to put down as much as you can, while still maintaining enough to weather potential emergencies or lower income.

What is included in my monthly payments?

If you have a fully amortizing mortgage, your monthly mortgage payment includes principal and interest. The mortgage may also include private mortgage insurance (PMI), which protects lenders against losses that can occur when a borrower defaults on a mortgage. If you have set up an escrow account, then a portion of your payment is earmarked for property taxes and homeowners insurance.

Can J.G. Wentworth help with a mortgage?

Of course. Talk to us and let us help you today.
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