Mortgages can be a tough nut to crack. For most people, the mortgage process can feel like walking a minefield—one small mishap can crush your dreams of owning a home. Asking the right questions can help you understand your options, make informed decisions, and buy a home that fits your needs and budget.
Common Mortgage Questions
Since the best time to buy a home is when the interest rates are low, we answer some of your burning mortgage questions so you can start your homeownership journey on a high note.
Should I get prequalified for a mortgage?
A mortgage prequalification serves as your NorthStar when looking to buy a home. It gives you a ballpark figure of how much you can afford to comfortably spend on a house. That helps you narrow your search to a given price range or neighborhood. A mortgage prequalification also demonstrates that you’re committed to buying a house. Some realtors use mortgage prequalification to weed out tire kickers and may reserve their best listings to prequalified prospects.
How much should I borrow?
You’re better off rephrasing this question to “How much mortgage can I afford? Buying a home comes down to your financial capabilities. While a large fancy home is appealing, let the numbers do the talking. Use a spreadsheet to track your income and expenditure and calculate your disposable income.
How much of the disposable income can you set aside each month for the foreseeable future? Earmark that monthly amount and, working backward, use it to calculate the total size of the mortgage loan.
What are Mortgage Rates?
A mortgage rate is the interest the bank charges for lending you the money. The rates vary widely and come down to the prevailing interest rates and your financial situation. Lenders use various factors, including your income, down payment, debt burden, and credit history, to determine your mortgage rates.
What is a Credit Score?
A credit score is a 3-digit number that gauges your creditworthiness. It’s the equivalent of a GPA for your financial performance over the years. Credit scores range from 300 to 850, spread across five categories—poor, fair, good, very good, and excellent. Each category indicates how much risk you pose, and lenders use your credit score to determine your mortgage rates. Low credit scores coincide with higher interest rates because the borrower poses a higher risk of defaulting.
How Do I Get My Credit Score?
You can request your free credit report from any of the three credit bureaus—Experian, TransUnion, or Equifax. Each credit report covers your financial history, including your loans, credit accounts, and other financial information. Requesting a credit report helps streamline your home-buying process. It allows you to take credible measures to improve your credit score, which may, in turn, help you secure an affordable mortgage rate.
How Can I Improve My Credit Score?
Your credit score is a numerical grade of your financial conduct. Lowering your debt-to-income ratio, paying your bills on time, and reducing credit utilization can help boost your credit score fast. Thoroughly review your credit report for accuracy and have the credit bureau rectify any errors, as mistakes tend to lower your score. Consulting a financial expert can help you come up with a solid financial plan.
Do I Need a Down Payment?
Raising a sizeable down payment—about 20% of the buying price—can make your home more affordable. It helps lower your interest rates and eliminates the costly private mortgage insurance (PMI). Lenders impose PMI, which is about 1% of the outstanding loan amount, on mortgages secured with a deposit that’s less than 20%.
Have more questions? Speak to one of our mortgage experts today!
