6 Mortgage Questions And Answers For The First-Time Home Buyer

Question MarkMortgage questions abound when you're a first-time home buyer. Compounding the challenge is the discomfort interrupting the conversation with a would-be lender or seller to ask about credit scores or how much money you need as a down payment. Everyone knows this stuff, right?

No, they don't all know—so you should ask these questions. Or, at the very least, study up a bit so you know the basics. To help get you up to speed, here's a crash course on the most common mortgage questions (and the answers you need to know). Take five to read on, and wonder no more.

1. What do you need to get a mortgage?

Before loaning you money, lenders want to see proof that you've proven reliable paying off past debts, so you'll need to start establishing credit.

There are ways to verify your past payments on utility bills, cell phone and rent. Getting a credit card is another option, just be sure to pay your bills according to the prescribed terms. Timely payments on car loan or college loans will also help you establish credit and help you get a mortgage.

2. If you have bad credit, how do you improve it?

For starters, check your credit report. It's free to download one copy each year, and you may be pleasantly surprised by what you find. And if the news is bad, there's still hope.

If you’ve got bad credit, frequently it's due to aged activity —an old collection notice, medical bill or something you didn’t know about. Often these issues can be fixed, boosting your credit score fairly quickly.

If you do have a bunch of bad marks and late payments, however, start paying on time and your score will gradually improve. 

3. What’s the difference between a mortgage pre-approval and a pre-qualification?

Pre-qualification is not going to hold the same weight as a pre-approval. You can go online and get somebody to print you out a pre-qual letter. And you’ll find that if you’re negotiating with an agent and they’re looking at a pre-qual letter, it’s probably not worth much to them.

A pre-approval letter — involving lenders fully checking your finances in a verifiable way — takes more time and effort, which is exactly why it carries much more weight. If you're serious about buying a home, get pre-approved to show you mean business.

4. How much down payment do you need for a mortgage?

The gold standard down payment for a mortgage is 20% — so if the home's price is $400,000, you'd have to pony up $80,000 of your own money to get the loan.

If you don't have that much, you can put down less, but you'll have to pay PMI, or private mortgage insurance. It's an extra fee of about $50 to $100 a month that lenders will require to mitigate the risk that you might default on your loan due to your lack of funds.

When you put less down, the trade-off is you actually have to spend more on a monthly basis.

That said, there are some exceptions that allow a buyer to avoid PMI even with a small down payment. Buyers who are in the military, veterans, and family members of veterans may be able to avoid PMI with a Veterans Affairs loan. And once your equity in your home rises above 20%, you can stop paying PMI.

5. What kind of down payment assistance is available?

If you're looking for help with a down payment, the "bank of Mom and Dad" may be a smart start — if your parents have the means to pitch in. Gifted money can help many people qualify for a loan, although you absolutely must tell your lender that the money was a gift. Fibbing on this front will raise red flags.

If private assistance isn't an option, or isn't enough, there are over 2,000 down payment assistance programs across the country that can help, as long as you meet eligibility requirements in terms of income and credit.

Check with one of our real estate agents (or your lender) for more information about programs on the North Shore that will help you become a homeowner.

6. What types of home loans are available?

Loan types vary widely, but typically fall into two camps. The first includes loans with an adjustable rate, meaning the interest rate could change after a period of time. The second includes loans that are "fixed" or "term," meaning the rate will stay the same for the length of the borrowing period. Generally, term or fixed-rate loans are more common and considered the safer option, but it all depends on your circumstances, including how long you plan to stay in the home.

As a first-time home buyer it’s expected that you’ll have a number of questions, so don’t be afraid to ask them. The more you educate yourself about the home buying process, the better … after all, purchasing your first home is a pretty big deal!

Have a lingering question we didn’t answer here? Feel free to contact us.

Don't Get Burned by a Credit Freeze

credit freezeBaby, it’s freezing outside.

With Equifax and other companies reporting massive data breaches this year, more consumers are putting a freeze on their credit reports. And while a credit freeze won’t affect a borrower’s ability to qualify for a mortgage, it does require the borrower to take additional steps during the application process.

Exactly what does a credit freeze accomplish?

A credit freeze blocks anyone — including lenders and employers — from accessing your credit report. Requests for a credit freeze must be submitted by mail, online or over the phone to the three major credit bureaus individually (Equifax, TransUnion and Experian). You’ll need to provide your name, address, date of birth and Social Security number. The fees vary by state but are minimal -- some are free and the most costly ones are $10 each time you place or lift a freeze. Payments can be made using a personal check, money order or credit card. Fees are generally waived for victims of identity theft.

Once placed, a credit freeze stays on your credit report until you lift or remove it. Existing creditors (or debt collectors acting on their behalf) will still have access.

Do keep in mind that while freezing your credit can prevent others from opening new lines of credit in your name, it also prevents you from opening an account yourself. It can affect your ability to purchase a new cell phone, secure a store credit card or pass the security review associated with an application for employment.

Borrowing? Here's what you need to know

If you’ve instituted a freeze on your credit but now want to apply for a loan, you will have to contact each credit bureau to temporarily lift the freeze.

If you're a borrower applying for a mortgage, that freeze will probably only have to be lifted once, because the credit report will be good for the typical 30- to 45-day period from contract to closing. But there are certain situations where another report needs to be pulled by the lender nearer to the closing. In that case, as the borrower you may have to lift the freeze — and pay for it — multiple times.

In addition, borrowers could run into problems in competitive housing markets where you need to close quickly. In those instances, it might be tricky to unfreeze the credit in time for the lender to pull credit reports and complete the underwriting and pre-closing process.

Here are a few considerations if you’re applying for a mortgage with frozen credit.

Check your own credit in advance

While freezing your credit protects you from the time the freeze becomes effective, it does nothing to correct existing credit issues. Get a copy of your credit report from each of the three reporting agencies, check them carefully and correct any errors before you apply for a mortgage.

Get fraud alerts

While a credit freeze “locks down” your credit, a fraud alert still allows creditors to pull your credit report as long as they verify your identity first, according to the Federal Trade Commission. For example, a business may call you to verify that you are the person requesting new credit. However, while fraud alerts may make it more difficult for others to open new credit accounts in your name, they may not prevent misuse of your existing accounts. Placing a fraud alert is easier than a credit freeze. You need only to contact one of the reporting agencies, which in turn is required to notify the others. A fraud alert is free of charge.

Know how the freeze works

Understand the logistics of lifting the freeze — and make sure you allow enough time for the lender to pull credit reports. Consumers who deal directly with the three credit-reporting agencies are given a PIN (personal identification number) to provide, either by phone, online or mail, every time they want to lift or remove the freeze, according to David M. Blumberg, a spokesman for TransUnion. Alternatively, consumers can lock or unlock their credit using a third-party service like TransUnion’s TrueIdentity, which is available online or in an app.

Putting a freeze on your credit report can protect you from identity theft; just be sure to do your homework first.

If you are concerned about fraud and identity-theft issues, contact information for the three major credit bureaus are listed below.

Equifax: 888-349-9960,

Experian: 888-397-3742,

TransUnion: 888-909-8872