5 Mortgage Questions Home Buyers Always Ask
5 MORTGAGE QUESTIONS
HOME BUYERS
ALWAYS ASK-ANSWERED
Is a 20% down payment always necessary?
The common recommendation is to put down 20%, but there are alternatives for those without the full amount. One option is a Federal Housing Administration (FHA) loan, allowing borrowers to make a down payment as low as 3.5%, provided they meet specific criteria, including a minimum credit score and steady employment.
For individuals with a military background or spouses of veterans, a Veteran Affairs (VA) loan offers the possibility of a 0% down payment. Additionally, some regions offer loan programs to assist low-income borrowers with down payment assistance.
Why might my mortgage interest rate differ from the advertised rate?
When you encounter an advertisement featuring a remarkably low interest rate, it's important to understand that it often comes with specific requirements, such as a high credit score and a substantial down payment. If your financial situation doesn't meet these criteria, you may be considered a higher risk borrower, resulting in a higher interest rate. The interest rate can also depend on factors like loan size and property type.
EXPERT TIP
“ Shop around. When shopping for a mortgage, you don’t have to go with the first lender you talk to. You might get a better interest rate from one lender than you do for another. By learning about your loan options before you apply, you can make sure the lender you choose offers the best type of loan for you. “
Is a 30-year fixed-rate loan always the best choice?
While the 30-year fixed-rate loan is popular, there's no one-size-fits-all solution when it comes to mortgages. Adjustable-rate mortgages (ARMs) may make sense in certain situations, such as when you plan to relocate before the interest rates adjust. Opting for a 15-year loan might be more cost-effective if you can handle higher monthly payments, as it leads to lower overall interest payments.
What is private mortgage insurance (PMI), and why is it required?
If you can't make a 20% down payment with conventional financing, you'll typically need to pay for private mortgage insurance (PMI).
PMI safeguards lenders if you can't meet mortgage obligations, adding an extra cost. It's a practical option for those wanting to buy a home sooner without waiting for a larger down payment.
An alternative is having the lender cover the mortgage insurance, often resulting in a higher interest rate.
What happens if I miss a mortgage payment?
Depending on your lender, you may have a grace period to make your payment. Missing the deadline can label your account as "delinquent," impacting your credit score. If you anticipate missing a payment, it's advisable to notify the lender in advance to explore potential solutions, such as forbearance.
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