Mortgage Center

FAQs

Have a look at the most-asked questions about mortgages to get your answers. If you still feel overwhelmed, do not hesitate to contact your agent for more information.

A mortgage is a type of loan that is used to purchase real estate properties. It involves borrowing a large amount of money and repaying it along with interest over a predetermined time period. If the borrower defaults or cannot fulfill the loan terms, the lender can take possession of the collateral (which is the security for the lender).
Yes, they are different types of borrowing. Mortgages are used primarily to purchase real estate and are always secured by collateral. On the other hand, loans are often unsecured and can be borrowed for any purpose. Further, mortgages frequently involve large amounts of money and require monthly payments that include both principal and interest.
Usually, it is not the same for most mortgages. The interest is computed in arrears at the date of due payment. A 360-day year is considered for interest calculation. This means, for instance, if you are making a November mortgage payment, you are paying the October interest. This is not the case with consumer loans, in which you make the interest payments in the same month as your loan payment.
No. The interest rate is the cost of borrowing the mortgage amount and the annual percentage rate (APR) is the aggregate of this interest plus the fees of your lender. APR is a better measure of the mortage offer as it gives a clearer idea of the total cost.
Sure. For instance, if you want to buy a home for $200,000, but don’t have the money upfront. You can apply for a mortgage from a financial lender, and if your application gets approved, you can get your required money. Let’s say the lender sets the interest rate at 3.5% over a 30-year term. It means you will have to make monthly payments of $898.09 to repay the loan, plus the interest. Over the course of the loan, you will end up paying a total of $323,312.40, which includes both the principal and interest amount.
Contract, debt, homeowner’s loan, pledge, and secured loans are a few of the terms used to explain a mortgage.
It is a liability, as you owe the money to your lender.
There are different types of mortgages that you can opt for:
  1. Fixed-rate mortgage – It is a long-term loan with a constant interest rate for the loan period.
  2. Adjustable-rate mortgage – The loan has variable interest rates and payments as per the changing market trends.
  3. Federal Housing Administration (FHA) loan – It is a government-backed loan and has easier terms. It requires mortgage insurance.
  4. Veterans Affairs (VA) loan – It is a government-guaranteed low-interest rate loan for military veterans and their families.
  5. Jumbo loan – This loan is used to purchase properties with high values. It requires a higher credit score and a down payment. The loan amount is more than the conforming limits set by Fannie Mae and Freddie Mac.
  6. United States Department of Agriculture (USDA) loan – It is a low-interest, no down payment loan for people living in rural or backward areas.
A home equity loan entails lump-sum borrowing against your home’s equity. A reverse mortgage also involves borrowing against your home’s equity, but without making monthly payments. Reverse mortgages are only available to homeowners aged 62 or older, whereas home equity loans are available to homeowners who have good credit and equity in their homes.
It varies and depends on several factors, like home price and type of loan you are opting for. A minimum down payment of 3.5% is typically required for an FHA loan, while a down payment of 10% or 20% may be needed for a conventional loan. However, if you put down a larger down payment, your monthly and interest payments would become lower. Also, you can avoid the cost of private mortgage insurance (PMI).
As a rule of thumb, it is a 28/36 distribution. According to this rule, not more than 28% of your monthly income should be spent on your total housing expenses and not more than 36% should go be consumed for your total debt expenses, including mortgage expenses. If you want better estimates, you can either consult your mortgage lender/financial advisor or use our mortgage calculator to compute your affordability.
For confirming loans, the government sets the maximum limit of the amount that can be borrowed and Fannie Mae or Freddie Mac (organizations that offer to back for these types of mortgages) set the rules that need to be adhered to. On the other hand, for non-conforming loans, the eligibility criteria and mortgage amount are not stringent and depend on the lender’s requirements.
Mortgage prequalification is a preliminary step in the mortgage process. Your lender will evaluate your financial position to estimate your mortgage affordability and qualification. For this assessment, he would analyze your income, assets, and debts. If you get prequalified, it would indicate your credibility to the sellers.
Your credit score, income, debts, debt-to-income ratio, down payment amount, property appraisal (of collateral), and employment history are the main factors that are assessed by a lender to determine whether you are qualified to buy a home or not.
No. Prequalification refers to your good financial standing and potential attainment of a mortgage. On the other hand, preapproval is about the lender’s consent to accept your mortgage request after analyzing your financial details. Being pre-approved increases your credibility in the eyes of sellers as well.
Private mortgage insurance (PMI) is a policy that protects the lender against the borrowers’ defaults. If you are putting down less than 20% of the home’s value, your lender would probably ask you to have a PMI. Usually, this extra cost is between 0.58% to 1.86% of the original loan amount and is often included in the borrower's monthly mortgage payment. When you will reach a Loan-to-value (LTV) ratio of 80%, your lender might allow you to cancel your PMI.
If you cannot make a 20% down payment, which is a clear-cut way to evade PMI, you can go for a first and second mortgage combination, which is referred to as a piggybank mortgage. The options are either 80-10-10 or 80-15-5. The first mortgage lien is 80% of the home value and the second mortgage is either 10% or 15% of the home value. It indicates that you would only need to make a down payment of 5% or 10%. As the first mortgage lien is of such a high percentage, the lenders would not ask you for a PMI. However, the terms of the second lien may not be favorable, but its payments would be tax deductible.
The process duration of getting a mortgage is not always the same. Depending on the lender’s requirements and the borrower's financial situation, it can take a few weeks or even several months. The mortgage process usually involves pre-approval, a home appraisal, underwriting, and closing.
Yes. You can refinance a mortgage if you want a different mortgage, a lower interest rate, or different mortgage terms. However, you need to consider the costs of refinancing before you take any refinancing decision.
No, refinancing is not the same as a loan modification. Refinancing entails getting a new mortgage with different terms and interest rates. On the other hand, a loan modification is about modifying the terms of your existing mortgage with your current lender to make payments more affordable and avoid default and foreclosure.
Down payment assistance is a type of financial aid provided to homebuyers to help them pay the upfront cost of their potential home’s down payment. It can be in the form of a grant, loan, or deferred payment program. Usually, such a program is offered by government agencies, non-profit organizations, or private lenders to make homeownership easier for people having low affordability.
The required credit score depends on various factors, like the type of mortgage, lender’s requirement, etc. Generally, a score of 620 is considered a minimum for many types of mortgages. Additionally, a government-supported loan demands a lower credit score as compared to conventional loans.
Yes, you can. However, improving your credit score won’t happen overnight, but the benefits attained are worth the effort. A few ways to make our credit score better include:
  1. Timely payment of your bills.
  2. Maintaining a low credit utilization.
  3. Monitoring your credit report.
  4. Having a diverse credit mix.
  5. Avoiding opening several credit accounts.
To get the best mortgage for your financial circumstances, you need to conduct your research and consult a few lenders before choosing the right one. Offered Interest rates, fees, customer service, loan types/programs, experience and expertise, market standing, reviews, and accessibility are some of the factors you need to assess various lenders against. You can look at different mortgage rates on our website.
If you want to find the right mortgage and terms, follow these steps:
  1. Know your budget range.
  2. Research and understand different types of mortgages.
  3. Research different lenders.
  4. Get pre-approval.
  5. Compare the received offers.
It depends on your financial status and requirements. For instance, if you opt for a short-term loan, you would be paying high mortgage payments but can benefit from a low interest rate. You can also choose an adjustable-rate mortgage, but the interest rate may get high if the market conditions become unfavorable. Contrary to this, with the fixed-rate loan, you won’t have to worry about a changing rate. The key is to understand different mortgages and match them with your financial situation to know what mortgage rate suits you well.
Mortgage points or discount points are the fees that are paid to the lender to get a discount or a reduction in the interest rate. The fee for each point is equal to 1% of your mortgage amount. However, you need to see if buying those points is worth it. You can do that by having a plan for your home ownership duration.
Yes, you can say that. When you apply for the mortgage, you pay a fee to your lender that includes application processing, underwriting, and any administrative fees. The origination fees are usually the same for different loans.
Well, it depends on what your priorities are and whether you want to pay a higher interest rate or higher closing costs. If you get lender credit, you would have to pay a higher interest rate but it would offset your closing costs.
According to the recent predictions by the Bank of America, mortgage rates will start experiencing a downward trend by the end of 2023 (5.25%), which is expected to continue in 2024 and 2025 as well.
Yes, you can. You can “lock in” your mortgage rate and pay the same locked rate during the predecided time period, even if the market conditions change. However, if you would change your application, including loan amount, credit score, or income records, your mortgage rate lock would get affected too. Plus, it depends on your lender and other circumstances whether you can get a locked rate.
You can, but only if your lender allows you to. Some lenders offer relief for people having any type of financial crisis. However, you need to proactively ask your lender first. You should not stop the payments by yourself if you do not want to affect your credit score.
As a homeowner, with a mortgage forbearance, you can temporarily stop or lower the payments for a predetermined amount of time. This is intended to help the borrower in his financially hard time. If you are in the forbearance period, you are exempt from making your normal mortgage payments. Unfortunately, the interest will keep building up and the overdue payments will eventually need to be paid back. The terms of the forbearance agreement can vary from lender to lender, which also impacts the duration of the forbearance period.
No. You need to wait for your forbearance to end as well as make at least three consecutive mortgage payments before you go for refinancing.
In a cash-out refinance, you borrow more money than the remaining amount of your existing mortgage. If you refinance your existing mortgage for a higher amount than you currently owe, the difference is considered cash that can be utilized for any purpose. If you are a homeowner and wish to leverage the equity you have built up in your home, you can opt for cash-out refinancing. However, you should not ignore taking into consideration the costs and risks of cash-out refinancing, which include a higher monthly payment, a longer term, and any other additional fees and interest.
If you do not have an adjustable-rate mortgage, your changed payment could be because of the changes in your escrow account due to the current tax rate and insurance amount. You can check your Annual Escrow Disclosure Statement for details.
It is an account with your mortgage lender that is used to cover property taxes and homeowners insurance. As market conditions change, your escrow account may experience a shortage of funds. If you have extra funds with you, you can pay extra money to cover the deficit, or it would be rolled over to the next year’s monthly payments.
Yes. Your lender would make those tax payments through your escrow account. These payments are made on a six-monthly or yearly basis. It is better to pay your taxes through your lenders, as they often offer lower interest rates if you are opting for this option of the escrow account.
Yes, mortgage interest payments are tax deductible within certain limitations. The laws keep on changing, which impacts the amount of interest that you can deduct from your tax bills. In addition, for this tax deduction qualification, your mortgage should be secure and your home should be qualified, and you should file an IRS form 1040 and itemize your deductibles properly.
Yes. If you have opted for an adjustable-rate mortgage (ARM), without a fixed payment rate time period, your interest rate would get affected, as it is tied to the Federal funds rate. When the Federal rate would increase, your mortgage rate would increase too due to higher costs of borrowing, and vice versa.

Get Informed About Different Mortgages!

Check out the details to opt for the right type of mortgage based on your financial situation.

Loan Type Current Average APR Minimum
Down Payment*		 Features When Should You Choose It?
30-year Fixed 7.11% 5%
  1. Fixed interest rate and payments over the loan period.
  2. Most opted-for mortgage.
  3. Rate is usually low.
 If you want a long-term mortgage with a fixed rate and low payments.
15-Year Fixed 6.26% 5%
  1. Less number of payments than a 30-Year mortgage.
  2. Less interest is paid.
  3. The amount of payments is higher.
 If you want to pay off your loan quicker than 30 years.
10/1 ARM 6.18% 10%
  1. Like a 30-year mortgage.
  2. Hybrid mortgage – Fixed & Adjustable.
  3. Fixed interest rate for first 10 years then the adjustable rate for the remaining time.
 If you want to sell your home within a period of 10 years.
7/1 ARM 5.94% 10%
  1. Hybrid model.
  2. Fixed rate for 7 years.
  3. Adjustable rate for the rest of the years based on the set index and lender margin.
 If you want to sell your home within a period of 7 years.
5/1 ARM 5.80% 10%
  1. Hybrid model.
  2. Fixed rate for first five years.
  3. Adjustable rate after 5 years of the loan.
 If you want to sell your home within a period of 5 years.
FHA 30-Year Fixed 7.06% 3.5%
  1. Government supported.
  2. Insured by the Federal Housing Administration (FHA).
  3. Locked interest rate – same interest payments.
  4. Mortgage insurance is required.
 If your credit score is not good, and you need government assistance.
VA 30-Year Fixed 6.48% 0%
  1. For veterans & military people.
  2. PMI is not a prerequisite.
  3. VA funding fee is sometimes there.
 If you belong/ed to the military.
Jumbo 30-Year Fixed 7.13% Varies as per the loan amount.
  1. Loan amount exceeds conforming loan limit.
  2. High-valued and pricey homes.
 If you are going for an expensive property.

* The down payment may vary as per different lenders, investors, or insurers of the loan.