Can funds be borrowed to pay for a down payment?

Yes it is possible to borrow the money for your down payment. You could borrow money from your 401 K, or even another home that you may own. If you are borrowing the money for your down payment even if it is from your friends or family you should disclose this information to your lender. There are some cases were keeping this information private has been considered a breach of the loan agreement.

What is a fixed rate mortgage?

With this type of mortgage your interest rate will remain fixed for the entire life of the loan. This type of loan will provide you with the same payment amount every month until the loan is paid off

What is an adjustable rate mortgage?

An adjustable rate mortgage is a loan in which the interest rate can move either up or down over the life of the loan. With this type of mortgage the interest rate will generally start low and increase the longer you have the loan.

What is a prepayment penalty and should I have one?

A prepayment penalty allows the lender to charge the borrower a fee if they close their loan within a certain period, usually the first five years of the loan. This fee is usually equal to about six months worth of interest payments on a loan. In some cases you may be able to get a lower rate if the lender includes a prepayment penalty, but it is usually better to try and avoid it.

What is the difference between pre qualification and pre approval?

Pre qualification is when a prospective buyer discloses, either verbally or by providing documentation of, their income, assets and credit so that a lender can determine how much a borrower will be likely to afford in loan payments. A pre approval involves an underwriter and is a more formal review of your credit and income. A pre qualification will commonly only provide you with an idea of what you can afford while a pre approval will actually guarantee you a loan of a certain amount.

What is Private Mortgage Insurance and will I have to pay it?

Private Mortgage Insurance (PMI) provides your lender with a way to recoup its investment if you are unable to repay your loan. PMI is usually required when the mortgage amount is higher than 80% of the home’s value. That means that if you buy a home with a down payment of less than 20%, you will probably have to pay PMI. Many people get around this by using an 80/20 program, which combines a first mortgage with home equity financing.

How much are closing costs?

Closing costs will vary based on several factors including the lender, the type of mortgage, the purchase contract, and the state you live in. Your lender will charge fees for appraisal and credit reports. If you are paying for points those will also be charged at closing. There are also fees for title insurance and hazard insurance and deposits for an escrow account. A lender can give you the approximate closing costs of your mortgage with a quote so that you can compare lenders.

What are points?

Points are prepaid interest, which you can pay to your lender at closing in exchange for a lower interest rate on your mortgage. Each point is equal to 1% of the loan amount. Paying points at closing will lower your monthly payment. Whether they will save you money in the long run depends on how long you plan to stay in your home.

Should I lock my rate?

When you lock your interest rate your lender will guarantee that rate for a determine amount of time, no matter what the market does. Usually lenders will lock a rate for 30 to 60 days. If interest rates rise within that period of your lower interest rate is safe, and that is what you will pay on your loan. Talking with your mortgage lender will give you a better idea of whether you should lock your rate. They will usually keep up with current events and know whether the interest rate is planning to rise or fall.

What will my mortgage payments include?

Your mortgage payment usually consists of two parts. The principal is the amount of money you are paying towards the amount borrowed. The interest is the amount of money you are paying to borrow the money. In the beginning of your mortgage you will pay more to interest and less to principal and as your mortgage progresses you will see a shift where more of the money is going to principal and less to interest.

When is refinancing a good option?

There are a number of reasons why someone would refinance. You can refinance if the interest rate has gone down, which will lower your monthly payment. Some people refinance when they have built equity in their home and would like to take some of that money out. Many people also refinance their loan when the initial period of their adjustable rate mortgage is coming to an end and they want to switch to a fixed rate mortgage.