Quick Answers to Common Mortgage Questions Help Build Trust
Buying a home is one of life’s largest decisions, and the mortgage process that comes with it is one of life’s most complex situations. As a result, most mortgage prospects have plenty of questions they need answered before they feel comfortable signing on the bottom line.
We have gathered ten of the most common questions loan officers hear and the answers you need to be delivering if you want to built trust with your prospect. In this business more than any other, your success depends on your ability to provide accurate information at a moment’s notice.
#1: Do I Need Excellent Credit to Get a Mortgage?
The simple answer is “no,” but it certainly does help if their credit is good-to-great. Today, home buyers can obtain mortgages with credit scores as low as 620, but that doesn’t always mean that someone with that score can automatically get approved.
There are several factors that are taken into consideration when a mortgage loan is approved or denied, and credit score is just one of them. Most importantly, however, is the higher the credit score, the lower the interest rate will be, so you should advise your prospects to clean up their credit reports as much as possible before applying.
#2: Do I Need to Put 20% Down?
Again, the simple answer is “no,” but it helps. While buyers can be approved for as little as 3% down, the benefit of putting at least 20% down on a home is two-fold – it makes for a less expensive monthly payment, and it allows the borrower to avoid paying private mortgage insurance on their loan.
#3: Which Is Better, a Fixed or Adjustable Rate?
This answer depends on a range of client-specific information, but when interest rates are low (like they are now), going with a fixed-rate loan usually makes the best financial sense. Again, this depends on the buyer’s situation and future considerations.
For instance, if the buyer is only planning on living in the home for a few years, then they may be able to save money with an adjustable rate loan, making this option a better one.
#4: What Are Mortgage Points?
When a home buyer pays “points,” they are essentially pre-paying some of the interest on their loan. One point equals 1% of the home’s value, so if the home costs $250,000, paying one points will cost $2,500. In most situations, paying one point can reduce the interest rate on the loan by one-eighth to one-quarter of a percent.
#5: What Is an Escrow Account?
The typical mortgage payment includes additional expenses like homeowner’s insurance and property taxes. These are annual expenses that if they aren’t made places the lender at risk, so the lender adds the monthly portion of these costs to the mortgage payment. The funds are held in an “escrow account” that is managed by a third party. This way, when the bills are due, the money is there to ensure they get paid on time.
#6: Is a Mortgage Pre-Qualification the Same as a Pre-Approval?
No. Pre-qualifying for a mortgage just means that you have the financial ability to qualify, it does not involve a credit check or any other approval process. Getting pre-approved means you already underwent the application and approval process, and have the loan waiting for you to be signed, sealed, and delivered. In terms of negotiating, a pre-approval letter holds much more weight and can be an asset when competing offers are made for a home.
#7: Will My Monthly Payment Stay the Same?
Even with a fixed-rate mortgage, it is possible for the monthly payment to change over time. Such things that can impact the payment amount include increases in property taxes or insurance premiums.
#8: How Long Is a Quoted Mortgage Rate Good For?
Just because a prospect is quoted a certain mortgage rate, it does not mean that they will get that rate when they close on their home. The only way for this to happen is for them to “lock in” their rate. If the quoted rate isn’t locked in, it can fluctuate according to the national rate.
#9: When Will the First Mortgage Payment Be Due?
The time between closing and the first mortgage payment being due depends on when the closing takes place. If the closing happens near the end of the month, then the first payment will usually be due in just over 30 days. But if the closing happens early in the month, then the first payment may not be required for nearly 60 days.
#10: How Much of a Mortgage Can I Get?
Loan amounts are factored using a variety of information, including home values, income, savings, down payment, debt-to-income ratio, and more. But it’s important to note that the loan amount that a buyer can get approved for is not necessarily what they can afford. The buyer should take all their expenses and financial obligations into consideration before settling on a mortgage amount, so they can be sure they can afford it.
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