Mortgage FAQ
- What is a Home Mortgage?
- How to Calculate Home Mortgage
- What Are Home Mortgage Rates Today?
- How Much is a Down Payment on a House?
- What is the Current Home Mortgage Rate?
- What Are Home Mortgage Rates?
- What is a Mortgage Refinance?
- Why Refinance a Home Mortgage?
- How to Refinance Your Home Mortgage Loan
- Can you Refinance a Home Equity Loan Into a Mortgage?
- How Much Does it Cost to Refinance Your Home Mortgage?
- What is Needed to Refinance a Home Mortgage?
- Can You Refinance a Home With a Second Mortgage?
- How to Refinance a Manufactured Home Mortgage
- How to Refinance Mortgage and Home Equity Loan
- How to Refinance Your Home Mortgage With Bad Credit
- Should You Refinance Your Home Mortgage?
- What is a Cash-Out Refinance?
- How Does a Cash-Out Refinance Work?
- How Much Can I Get With a Cash-Out Refinance?
- Is a Cash-Out Refinance Taxable?
- How Long Does a Cash-Out Refinance Take?
- Is a Cash-Out Refinance a Good Idea?
- Can You Get a Cash-Out Refinance With Bad Credit?
- Do I Qualify for a Cash-Out Refinance?
- How Soon Can I Get a Cash Out Refinance?
- What is a Limited Cash-Out Refinance?
- What is a Reverse Mortgage on a Home?
- Can You Lose Your Home in a Reverse Mortgage?
- Can You Get a Reverse Mortgage on a Mobile Home?
- Can You Use a Reverse Mortgage to Purchase a Home?
- Can You Get a Reverse Mortgage on a Mobile Home?
- Can You Get a Reverse Mortgage on a Second Home?
- How Long is a Home Mortgage Borrowed For?
- What is the Current Home Mortgage Interest Rate?
- Is a Home Equity Loan a Mortgage?
- Can You Deduct Mortgage Interest on a Second Home?
- Is a Home Equity Loan a Second Mortgage?
- How to Apply for a Mortgage as a First Time Home Buyer
- Is Mortgage Interest on a Second Home Deductible?
- How to Sell a Mobile Home With a Mortgage
- What is a Home Equity Conversion Mortgage?
- Is Home Insurance Included in a Mortgage?
- What Are Home Mortgage Rates Right Now?
- How Much House Can I Afford?
- What is the Home Mortgage Interest Rate Today?
- What is the Home Mortgage Interest Rate?
- Is There Anything I Shouldn’t Do Before I Get Pre-qualified for a Home Mortgage?
- Is There Anything I Shouldn’t Do While I’m Getting Pre-qualified for a Home Mortgage?
- What is your Income Ratio?
- What is your Debt Ratio?
- What is Mortgage Insurance?
- What is an APR?
- When is the First Mortgage Payment Due?
- How Large of a Mortgage Can I Afford?
- Do I Need to Get Pre-Qualified for a Mortgage?
What is a Home Mortgage?
A mortgage is a loan taken out with a bank, mortgage company, or other financial institution, in order to help you purchase a home. The lender holds the title of the property until the loan is paid off. The time frame of mortgages usually range anywhere from 15 to 30 year terms. Here are the various types of mortgages:
- Conventional mortgages
- Government-insured mortgages
- Fixed rate mortgages
- Adjustable rate mortgages
- FHA mortgages
Depending on your credit score, cash in the bank, and personal needs, any of these could be an ideal option for you. Learn more about different types of mortgage loans here.
How to Calculate Home Mortgage
Here is how to calculate your monthly mortgage payment:
1. Take your yearly interest rate and divide it by 12
2. Divide the total loan by the number of years you have left then by 12.
3. Multiply the monthly interest rate by the monthly payment.
4. Add the monthly interest to the monthly payment.
What Are Home Mortgage Rates Today?
Mortgage rates often change day by day, lender to lender, state to state, city to city, and even by loan type. Make sure to research what your top, local financial institutions are offering. It is the ideal way to find out what the best rates are at any given moment.
How Much is a Down Payment on a House?
A down payment on a house is typically 20% of the total home’s cost. It can vary based on certain factors like your credit score and financial well being. Nowadays special programs are available where buyers can pay as little as 3% down for a new home. Learn more about how much a down payment costs here.
What is the Current Home Mortgage Rate?
Home mortgage rates change often and are based on several factors. Most notably, these factors include:
- Value of property
- Mortgage type
- Loan amount
- Credit Score
- Property location
- Down Payment
- Loan term
What Are Home Mortgage Rates?
Home mortgage rates are the interest rates that you can expect to pay on your mortgage. In most cases, they will be given to you in a yearly rate
What is a Mortgage Refinance?
Inherit in the name itself, refinancing means you are obtaining new financing for something you already own (or partially own). It is akin to a balance transfer when you’d move your loan from one lender to another in order to obtain more favorable terms, except it’s a mortgage payoff in this case.
For example, if you currently have a rate of 5% on your mortgage, but see that refinance rates are now 3%, a refinance could make a ton of sense and potentially save you a lot of money. So you basically have one lender pay off your existing loan with a fresh loan at the lower secured interest rate.
There is also the cashout refinance process, which allows you to tap into your home equity while simultaneously changing the rate and term of your existing mortgage. For example, if you currently owe $100,000, but your home is worth $500,000, you could potentially take out $100K cash and your new loan amount would be $400,000.
Why Refinance a Home Mortgage?
There are various reasons for wanting to refinance. Most often people are looking to pay less in interest. Here are some other notable reasons:
- Shorten loan term
- Pay off debt
- Lower interest rates
Refinancing can result in different outcomes such as securing a lower interest rate or a shorter loan term. A shorter term means you get charged less interest but also results in a higher monthly payment. Longer term causes the opposite to take place; more interest over the course of the loan but lower monthly payments. Learn how to start your refinance journey today!
How to Refinance Your Home Mortgage Loan
To kick off the process, you’ll want to determine what kind of refinance works best to meet your needs. If you are looking to lower your monthly payments, a longer-term loan with low-interest rates would be good. If you are looking to pay off the loan quicker, a short-term loan would work better. For example, opting to go with a 20-year loan versus a 30 year loan. To recap, here are the step simplified:
1. Consider your options
2. Shop around for the best rates
3. Choose a lender
4. Start the process
Can you Refinance a Home Equity Loan Into a Mortgage?
Yes you can. This is done through a process called cash-out refinancing. It involves taking out a new loan for more than what you currently own on your home. You can then receive the balance in cash to pay off your home equity loan. Prior to the commitment you should make sure your interest rate is lower than the rate on your current mortgage. There is no limit on the amount of times you can do this. But keep in mind you will need to pay application and closing costs each time.
How Much Does it Cost to Refinance Your Home Mortgage?
Closing costs on average for a mortgage refinance is around $5,000. This number can vary greatly depending on certain factors such as:
- Property value
- Location or property
- Institution chosen
- Prepayment penalty
What is Needed to Refinance a Home Mortgage?
Normally you’ll need:
- ID or driver’s license
- Good to excellent credit
- Income proof
- Current home loan statement
- Record of living expenses
- Other liabilities & assets where applicable
Finally, most institutions will want to know you’ve build up a reasonable amount of equity.
Can You Refinance a Home With a Second Mortgage?
Yes you can. The easiest way would be with a resubordination. However, this isn’t always so straightforward. Furthermore, you can pay off the second mortgage either with a cash-out refinance, or also you can simply go out of pocket.
How to Refinance a Manufactured Home Mortgage
Mortgage rules are different for manufactured (mobile) homes. You can refinance on some but not others. Some factors such as:
- Age of the home
- Size of the home
- Foundation type of home (fixed versus not fixed)
- HUD compliance
- Owning the land
How to Refinance Mortgage and Home Equity Loan
The very first step of the process is to confirm your eligibility. Once that is confirmed, you’ll want to find a financial institution that is most suitable to meet your needs. Usually it is much easier to get approved if both your mortgage and home equity loan were taken out with the same lending institution.
How to Refinance Your Home Mortgage With Bad Credit
There is no easy way to go about this. Most lenders require you to have a credit score of 620 or higher. Without a 620 credit score, finding a lending partner will be highly unlikely. That said, here are some suggestions on what to do:
- Speak with your current lender. Being an existing client might give you some level of prioritization or at least empathy
- Seek out credit unions. Credit unions are well documented to be more accommodating towards people with subpar credit.
While you are investigating your options, be sure to take measures to improve your credit score so you don’t waste any time.
Should You Refinance Your Home Mortgage?
This is certainly a large financial decision to make. If the interest rate you currently have is higher than the rates in-market, then refinancing is more than likely to be a smart move. You should also consider it if:
- refinancing will shorten your payment schedule
- lowers your interest rate by more than 1%
Alternatively, if you are moving in the near future, you should hold off on rushing to refinance.
What is a Cash-Out Refinance?
A cash-out refinance is a loan taken out to replace your existing mortgage. This results in a new loan for a higher amount than what you owe on your property. People often use the cash balance for home improvement projects, debt consolidation, or other important financial needs. Keep in mind that you need to have some equity built up in your home to secure a cash-out refinance.
How Does a Cash-Out Refinance Work?
Cash-out refinances effectively take back some of the money that you’ve already paid into your mortgage. It is important to note that a cash-out refinance will increase your principle. Think of it as a mix between a mortgage refinance and a home equity loan.
How Much Can I Get With a Cash-Out Refinance?
Most lenders will approve you to get up to 80% of the home’s value. However, this can vary on a variety of factors. Your level of equity, your credit score, and loan type are the three most important factors that determine what you get approved for.
Is a Cash-Out Refinance Taxable?
Cash-out refinances are not taxable because they aren’t considered to be direct income. Alternatively, it is a type of loan, and therefore, will put you in debt with the expectation that you will pay it back over time.
How Long Does a Cash-Out Refinance Take?
The typical timeframe is between 45 and 60 days from the date you apply. However, this can vary by lender and other application factors.
Is a Cash-Out Refinance a Good Idea?
This totally depends on your situation as the borrower. The important thing to note is that you are using your home as collateral. If you fail to make payments, you can lose your home! So please proceed with extreme caution. If you are in a good financial position, a cash-out refinance can be a good idea. A few of the main advantages can be:
- Lower overall debt
- Better loan length
- Lower interest rates
Can You Get a Cash-Out Refinance With Bad Credit?
Usually not. Just like normal refinancing, you need a credit score of 620 or above. Without that 620+ score, finding an appropriate lender might present a challenge.
Do I Qualify for a Cash-Out Refinance?
The qualifications can vary for a cash-out refinance from lender to lender. Normally, you need a credit score of at least 620 and some present equity in your home.
How Soon Can I Get a Cash Out Refinance?
Between 45 and 60 days from the day you apply for the refinance to close is the typical timeframe.
What is a Limited Cash-Out Refinance?
When the new loan amount is larger than the old one. This occurs due to the fees for the refinance being added to the loan amount versus coming out of pocket. The money is usually used for home repairs, home improvements, and to pay off debt.
A limited cash-out refinance has zero upfront closing costs because you’re deferring them to the loan amount. The amount of cash that you can receive is either 2% of the difference between the old loan and the new loan, or $2,000, whichever is less.
What is a Reverse Mortgage on a Home?
A reverse mortgage is a loan that allows the borrower to convert a portion of their home’s equity into cash. Reverse mortgages are generally promoted to older people over 62 and do not require monthly payments.
Can You Lose Your Home in a Reverse Mortgage?
Yes you can. This could only happen as a result of the following:
- If you were to stop paying your property taxes and/or homeowners insurance.
- If you are away from the home for 6 out of 12 months for reasons not deemed as medical
- If you were to pass away, and your spouse is not listed on the loan as a co-borrower or borrowing spouse
- If you are away from the residence for a year or more
- Your home is not being maintained up to FHA standards.
You should speak with an expert on reverse mortgages in order to find out more information on this loan type.
Can You Get a Reverse Mortgage on a Mobile Home?
No, you can not. Mobile homes are defined as manufactured homes built before June 15th, 1976. Conversely, some manufactured homes are eligible for reverse mortgages. The most common type is called an FHA home equity conversion mortgage.
Can You Use a Reverse Mortgage to Purchase a Home?
Yes. In a HECM or Home Equity Conversion Mortgage, you can purchase a new home through a reverse mortgage. HECM allows people 62 and over to purchase a new residence with the proceeds from the loan.
Can You Get a Reverse Mortgage on a Mobile Home?
No, you can not. Since mobile homes are defined as manufactured homes made before June of 1976, they are subject to the Manufactured Home Construction and Safety Standards act. This is a piece of legislation which came into effect that month. Stating that if your manufactured home was created after June of 1976, then it is possible to get a reverse mortgage, as long as you qualify for one. But before the date, it is prohibited to do so.
Can You Get a Reverse Mortgage on a Second Home?
Yes, you can get a reverse mortgage on a second home. You can also use a reverse mortgage from your primary residence to secure another residence. However, you can’t be away from the home with a second mortgage for more than half the year. The only exception is due to medical reasons. This is very important because if you don’t follow it the bank can repossess your home.
How Long is a Home Mortgage Borrowed For?
Most commonly, people opt for a 30 year mortgage, but it’s also fairly common for people to sign up for 15 or 20 year mortgages. It all depends on your financial health and monthly payment tolerance.
What is the Current Home Mortgage Interest Rate?
Mortgage interest rates change constantly and are affected by a lot of different factors. Make sure to do your research on the financial institutions that work in your area. It is the best way to know if you’re getting the best rate possible. You can also check sites like Bankrate.com for the most current mortgage rates.
Is a Home Equity Loan a Mortgage?
Yes, a home equity loan is a type of mortgage loan. In a home equity loan, the borrower is drawing from their home’s equity. A home equity loan is paid back in installments. It is often regarded as a second mortgage due to the fact that the person is borrowing against their current home.
Can You Deduct Mortgage Interest on a Second Home?
Mortgage interest is normally tax deductible on a second home. The only time it isn’t, is if the home is not rented out at all during the taxable year. If not, the mortgage must meet the same deductibility requirements as the primary residence.
Is a Home Equity Loan a Second Mortgage?
Yes. A home equity loan is usually considered a second mortgage. A home equity loan is also referred to as a junior-lien because it is borrowed against your home’s equity, and uses your home as collateral for the loan.
How to Apply for a Mortgage as a First Time Home Buyer
Applying for a mortgage as a first time home buyer can certainly feel like an overwhelming and complicated process. Fortunately first time home buyers can take advantage of a FHA loan which simplifies the process. An FHA loan is a federally insured loan specifically designed for first time home buyers. Here are the qualification for a FHA loan:
- Have proper identification
- Have a decent credit score
- Be gainfully employed
Have enough cash for a small down payment
See some of the nation’s top ranked mortgage lenders here.
Is Mortgage Interest on a Second Home Deductible?
Your mortgage interest on a second home is deductible as long as the property isn’t rented out during the year. The second home will have all the same requirements as the first as it pertains to mortgage interest tax deductions.
How to Sell a Mobile Home With a Mortgage
Selling a mobile home with a mortgage is akin to selling a traditional home with a mortgage. You can list it on the market or hire a real estate agent to do so. Here is what you want to do:
- Fix it up
- Take high quality pics
- List it on the market
- Get pre-qualified.
- Start looking for a home
- Keep all important documents on hand. Tax returns, bank statements, pay stubs, and W-2s.
- Taking on more debt
- Falling behind on your bills
- Maxing out your credit cards
- Closing a credit card account
- Switching jobs
- Co-signing on a loan
- Making a major purchase
- Marrying into a bad credit situation
- Making big deposits
- The home’s value
- Your earnings
- Your monthly expenses
- Your savings account balance
As with a traditional home, make sure that all mortgages, loans, or liens associated with your mobile home are paid off before the title is transferred to the next owner.
What is a Home Equity Conversion Mortgage?
A Home Equity Conversion Mortgage, or HECM, is the only reverse mortgage ensured by the Federal Housing Administration. This program allows you to cash out a portion of your home’s equity. Normally requires the homeowner to be at least 62 years of age.
Is Home Insurance Included in a Mortgage?
It isn’t included in the actual mortgage. Your lender very well might set up an escrow account from which you ultimately end up paying your homeowners insurance and property taxes from.
What Are Home Mortgage Rates Right Now?
Mortgage interest rates can change daily and vary from institution to institution. Be sure to shop around and contact all of the lenders in your area so you can determine that you’re getting the best rate available.
How Much House Can I Afford?
Experts agree that your mortgage payment shouldn’t exceed 28% of your pre-tax monthly income. To find this number, just grab a calculator and multiply your pre-tax monthly income by 28, then divide it by 100. This will let you know what budget you have to work with. Compare quotes now from top mortgage lenders.
What is the Home Mortgage Interest Rate Today?
Mortgage interest rates change daily. Check with your local banks to confirm rates, and do be sure to do your research before locking in a loan.
What is the Home Mortgage Interest Rate?
A home mortgage interest rate is the percentage of interest you pay on your mortgage each year. Each lender offers different (even if slightly) interest rates, and these rates rise or fall depending on many real-world elements.
Is There Anything I Shouldn’t Do Before I Get Pre-qualified for a Home Mortgage?
While going through the mortgage process, avoid doing other major financial activities at the same time. Make sure all your monthly bill payments are on time in order to maintain the best credit score possible. You also may want to consider keeping a paper trail of any large deposits you make. Finally, be sure to notify your loan officer directly if you plan to use a gift from your family towards the down payment. Getting pre-qualified is the most important action item to knock out before setting out to buy a home. In the eyes of a seller, a pre-qualified home buyer also appears to be more motivated. Beyond being pre-qualified for a mortgage, do a lot of research into your finances and know how much house you can afford ahead of time. Then you will be ready to make what is one of the largest financial decisions of your life.
Is There Anything I Shouldn’t Do While I’m Getting Pre-qualified for a Home Mortgage?
In short, yes! You don’t want to do anything that can run a risk of you getting denied for your mortgage. Keep in mind any major changes in your financial activities can delay or spoil your closing on the loan. This can even happen if there was an earlier approval that took place. So there are at least nine financial related actions you should avoid when applying for a mortgage. Here they are not in any particular order of importance:
If for some reason you think any of these actions are absolutely urgent and necessary, talk to your lender beforehand. Your loan officer can help you figure out what to do so that your loan isn’t in jeopardy.
What is your Income Ratio?
Your income ratio is defined as your total monthly housing expense divided by your pre-tax monthly income.
What is your Debt Ratio?
Your debt ratio is defined as your total monthly housing expense plus any recurring debts, divided by your monthly income.
Loan underwriting best practice suggests a max 28 percent income ratio and 36 percent debt ratio, which may vary based on personal finances, loan program, and down payment.
In order to manage your debt effectively and maintain a healthy credit score, keep your credit card balances to less than 30 percent of your credit limit. Furthermore, don’t close any credit cards/lines even if you haven’t used them in a while. Your oldest credit card account might be the biggest factor in determining the mortgage rate in which you qualify for.
What is Mortgage Insurance?
Mortgage insurance protects the lender by lowering the risk of issuing a loan to you. This results in helping you qualify for a loan that you might not otherwise be able to obtain. Generally speaking, borrowers who make a down payment of less than twenty percent of the purchase price will need to secure mortgage insurance.
In some loan types, your mortgage insurance premium, or MIP for short, you will pay in monthly installments for the life of the loan. For example, on a FHA loan where you put down less than ten percent of the purchase price, you’d have to pay monthly installments for the life of the loan. However, if you pay over ten percent of the purchase price, you pay MIP for eleven years.
In some cases, you might be able to get rid of PMI once your mortgage balance reaches eighty percent of the home’s value at the time you purchased it.
What is an APR?
The Annual Percentage Rate cost of your total loan credit, calculated into an annual interest rate. The Annual Percentage Rate also includes loan points and other prepaid finance charges which reflects the true yield on the loan. This is why the APR is normally higher than a loan’s interest rate. To check that you’re getting the most competitive rate, make sure you are comparing APR to APR on the different loan programs you are looking into.
After you’ve applied for a home loan, you will ultimately receive a Loan Estimate from your lender. If you applied for more than one type of loan, a loan estimate will be broken down for each loan type you applied to. The loan’s APR will normally be listed in the comparison section on the third page of the loan estimate. Changes are you’ll notice the difference between your APR and your loan interest rate right away. An APR is often higher than an interest rate because of added fees. An APR basically acts as a loan comparison tool. This is because Interest rates, loan fees, and points often are all over the map, however, the APR can always be used to accurately compare various loan products. In the case where an interest rate looks too good to be true, the APR can cut through the noise and quickly tell you the real story.
This hack can be leveraged to separate the pros and cons when choosing a mortgage: Simply compare a loan’s APR to its advertised interest rate. An APR that’s significantly higher than the interest rate is usually a red flag, signifying that there are added costs attached to the loan. Talk to your loan officer more about these nuances if you are concerned about it.
When is the First Mortgage Payment Due?
It depends. When you close your home loan and if you pay prepaid interest at closing determines when your first payment is due.
For example, if you close later in a month, chances are your first payment will be due in just over 30 days from then. On the flip side, if you close early in a month, you will normally not make your first payment for almost sixty days. If you have moving expenses and renovation costs on your plate, having that extra cushion can be extra b beneficial.
How Large of a Mortgage Can I Afford?
This is a loaded question. You need to consider several different things:
From there, your down payment will be key in determining your loan amount. Based on these points, your debt-to-income ratio is established. That is the key metric in determining if you qualify for a mortgage or not.
Needless to say this is a fairly involved process. You can’t just wing it because it is virtually impossible to estimate what you can afford. In addition to merely qualifying, you always need to consider your comfort level. Normally you want to finance as little as you can in order to avoid paying interest you don’t need. Property taxes are also an important factor to consider.
Do I Need to Get Pre-Qualified for a Mortgage?
Technically you do not. Although it is a great way to get an estimate of how much home you can afford. Essentially your creditworthiness and to have the ability to borrow.
What you ultimately want is a pre-approval letter. Having one makes the buyer seem more motivated, and in turn puts you in the most advantageous position to make a qualified offer on a property.
