10. What exactly is pre-qualification?
A pre-qualification is a simple evaluation of your financial situation to see if you qualify for a mortgage. A pre-qualification is not a firm assurance of a loan because it is based on unverified information you submit and does not involve a credit check or any documents.
11. What exactly is pre-approval?
A pre-approval, as opposed to a pre-qualification, can be a very beneficial tool in the home-buying process. It’s essentially the same as applying for a mortgage but without the requirement of a specific residence.
A lender will analyze your credit, verify your income and employment, and agree to grant a set amount of money as part of a pre-approval. A pre-approval letter can demonstrate to sellers that you’re serious about purchasing a home and that you’ll be able to follow through on an offer and close on their property.
12. What exactly is an escrow account?
When you get a mortgage, you’ll usually be requested to put money into an escrow account to guarantee the lender that the continuing expenditures of owning the home, notably taxes and insurance, will be taken care of. You’ll deposit a significant sum into the escrow account (also known as your “prepaid”) at closing and then add to it with each of your monthly mortgage payments.
13. Why is it so difficult to close a mortgage?
Mortgages typically take at least 30 days to process, and many first-time buyers do not anticipate such a long wait. The short answer is that a lot of things must happen between the time you submit your mortgage application and the time you take ownership of your house.
Here are a few examples: You’ll need to gather documents for your lender (and they’ll always want for more, believe me); arrange and complete a home inspection; the seller may require time to finish repairs, and the loan must go through underwriting.
It’s a time-consuming process. I’ve purchased three homes in my life, and I can tell you directly that there’s a lot to do, even within a 30-day span.
14. How is my mortgage payment calculated?
Depending on your circumstances, your mortgage payment will typically consist of three or four components:
• Principal: Your outstanding balance is repaid.
• Interest: The payment of interest on the outstanding balance.
• Taxes: See also question 12. One-twelfth of your annual property taxes will be deducted from your mortgage payment and paid into your escrow account.
• Insurance: This covers homeowner’s insurance as well as any other hazard insurance required by law, such as flood or windstorm insurance. If you put less than 20% down on your loan, you may be required to pay private mortgage insurance. Your mortgage payments are commonly referred to as PITI because they are based on these four items.
15. Will my monthly payments alter during the length of the loan?
Probably. Even if you have a fixed-rate loan, your payment is likely to fluctuate over time. What’s the reason? The escrow component of your payment is based on your property taxes and insurance bills, which fluctuate. If they rise, your lender may need to request a bigger escrow payment.