Mortgage 101: What You Need to Know (FAQs)
It is perfectly natural for you to have questions about the mortgage process, especially if you’re a first-time homebuyer. That’s why we are here. If you can’t find the information you need among these frequently asked questions, please don’t hesitate to contact us for further information.
1. What is my credit score?
2. How do they calculate my FICO?
3. I think my credit is excellent so will I get a discount on my mortgage rate?
4. Would it help me to have a cosigner if I have bad credit?
5. Will my credit history affect my ability to get a mortgage?
Buying a Home
1. How do I choose a mortgage lender?
2. When should I talk with a lender?
3. How do I get started?
4. What does it mean to be "pre-qualified" or "pre-approved" for a mortgage?
5. What about pre-approval from an online lender?
6. What happens after I apply for a mortgage?
7. What about a home inspection, can it affect the process?
8. What happens at the home closing?
1. What is a mortgage?
2. How does a "Good Faith Estimate" help me?
3. What are points? Should I pay them?
4. What is the "loan-to-value" ratio?
5. What is the APR?
6. What's included in my mortgage payment?
7. What is a rate lock?
1. How do I determine which kind of mortgage is right for me?
2. I'm a first time home buyer. Are there mortgages designed just for me?
3. When I'm shopping for houses, how do I know which ones I can afford?
4. What if I want to include my closing costs in my mortgage, can I do that?
Your credit score (or FICO) is a reflection of your credit history. It’s based on how much debt you have and your history of paying off your debts. For example, do you pay your credit bills on time? Or, are you late most of the time? A history of late or non-payment counts against you. FICO scores can range from 300 to 850. The higher your score, the higher your credit rating. If you have a low credit rating, you present a greater risk to a lender, and you are less likely to get a mortgage. Or, you may have to pay a higher interest rate.
FICO scores are based on data that falls into five different categories: Payment History, Amounts Owed, Length of Credit History, New Credit and Types of Credit Used.
Your Norcom mortgage expert would be happy to explain credit scores to you in more detail.
You might. Your rate will be based on many factors. A good credit score is important, but we’ll also need to take other factors into account – the kind of property you wish to buy, the size of your down payment, the type of loan you want, etc. – before we can consider any discounts for your credit score.
Unfortunately, a cosigner cannot repair your credit. There are nonprofit agencies that can help you, however. If you have been denied a mortgage and want help establishing a better credit record, your Norcom mortgage specialist would be happy to refer you to one of these agencies.
It is always a good idea to know your own credit history, because there can be errors in your credit report. If you are aware of them, you can get them corrected before you apply for a mortgage. Your credit history is an important indicator of whether or not you will honor your mortgage commitment and repay your loan in a timely fashion. If you’ve had problems in the past, be honest about them. There can be legitimate reasons for having had credit problems, and we’re always open to hearing them. In fact, Norcom is more flexible than many other lenders. The best approach is to talk with your Norcom mortgage specialist.
That depends. There are significant advantages to owning your own home. As you make your mortgage payments, a portion of each payment will go toward the principal of your loan. That means that, as you pay, you’re building equity in your home. The equity is like an investment – money you can most likely get back when you sell your home. There’s also another big advantage: Our current tax laws allow you to deduct any interest you pay on your mortgage from your federal taxes. That’s money you don’t have to pay to the government! There are other good reasons to buy … like a feeling of having control over your living space, greater privacy, freedom from landlords and more.
Not everyone is in a financial position to buy a home, however. A mortgage is a big commitment. If you’re not ready financially to make that commitment, you may want to wait until you are. There are other personal considerations to take into account, as well. Your Norcom mortgage specialist can sit down with you, look at the bigger picture, and help you determine whether it’s the right time for you to consider buying your own home.
Rent vs. Buy Calculator
There are lots of lenders out there, so shop around. Take a look at a lender’s reputation and their financial stability. You should be able to talk to a lender and feel comfortable that you’re getting good advice and your business matters to them. A lender that makes loan decisions locally, like Norcom, can make it easier for you to monitor the progress of your application and answer any questions you may have more quickly. Local lenders also “know the territory.” The mortgage specialists in each of Norcom’s branch offices really know their markets inside and out. They’re also well connected with the local real estate agents, who can give you invaluable information about properties, schools and communities.
If you’ve started to think about buying a home, it’s time to talk. By getting a Norcom specialist on your side early in the process, you’ll benefit from our expertise. We’ll guide you through all the steps to help you get the home you want and the mortgage you can afford. Above all, we’ll make it easy.
The first step can be as simple as driving around the towns or neighborhoods you might want to consider. Think about where you work: How far do you want to commute? How large a home do you need? What types of houses appeal to you? Look at houses, lots of them. Then, look in the real estate listings in the local newspapers. Better, yet, talk with a real estate agent in your area. We work with many licensed Realtors, so we can help you there, too. Most of all, talk with us about what you can realistically afford, so you don’t waste time chasing after houses that may be beyond your reach.
Pre-qualification is an informal snapshot of your creditworthiness and how much you may be able to borrow. It’s a simple process you can do over the phone or online. You’ll answer a few questions – about your income, your long-term debts, your down payment, etc. – just to get an idea of how much you can afford to spend on a home. Pre-qualification is not binding, and there is no guarantee that you will, in fact, get a loan for that amount.
A pre-approval is a commitment from Norcom that we will lend you a specified amount of money. To become pre-approved, you’ll need to provide documentation of your creditworthiness. We will review and verify your documents and determine how much we think you can afford to borrow. Please keep in mind that pre-approval is not a guarantee that you’ll get a mortgage, however. The pre-approved amount is still subject to review (once a property has been chosen) and may be lowered, or revoked, depending on a number of factors related to the specific property.
By getting pre-approved for a mortgage before you start house hunting, you’ll show sellers that you’re qualified and serious about buying a home.
Unfortunately, some online lenders may “approve” you for a loan that’s actually more than you can really afford. When you work with Norcom for pre-approval, we’ll give you a reliable estimate based on your documentation and our analysis of your financial situation. That means you can shop with confidence.
What kind of information will I have to provide when I apply?
Typically, you’ll need to provide us with the following:
W2s (past 2 years)
Most recent paystubs (past 30 days)
Names, addresses and phone numbers of employers (past 2 years)
Bank statements for all checking, savings, mutual funds, 401K accounts (past 3 months)
Other real estate you own, including addresses, annual taxes, insurance, plus leases and tax returns related to any rental income (past 2 years)
Green Card (if applicable)
Sales Contract or Purchase Agreement
If self-employed, 2 years’ tax returns (and all schedules and year-to-date profit and loss)
Copy of Divorce Decree or separation agreement (if applicable)
Your Norcom mortgage specialist will review your documentation and let you know whether anything is missing. Then, he or she will order an appraisal of the property and submit your loan to our underwriters. Once we have the appraisal (and any additional information that may have missing), the loan will be underwritten and, if it qualifies, approved. A commitment letter will be issued to let you know about any closing conditions and when to schedule your closing with your attorney.
During a home inspection, the house you wish to buy will be thoroughly evaluated by an inspector. The overall structure, as well as all of the home’s mechanical systems (heating, plumbing, electrical, etc.) will be assessed to determine if there are any major problems that need to be addressed before the sale can be completed. An inspector will also look for evidence of termites, carpenter ants or other pests, which may create damage and/or health issues. The inspector will prepare a report for your review.
We strongly recommend that you have the inspection done as part of any written offer to buy the house. If the deal is closed before you have an inspection, you have bought the house in “as is” condition. By having the inspection done before you’ve “signed the deal,” you may have the leverage to get the seller to pay for repairs before you agree to purchase the house. You can also put an “inspection clause” in your offer, which simply specifies that the seller must fix any problems revealed by the inspection. If serious problems are found, an inspection clause can remove your obligation to purchase.
Typically, the closing is a meeting between you, your realtor, the seller, the seller’s realtor and an attorney. The attorney will provide a basic explanation of the contents of the documents you need to sign. If you have any questions about what you are being asked to sign, take the time to read the documents over, or ask the attorney for a more detailed explanation.
Before the closing date, Norcom will provide you with a “good-faith estimate.” This document will explain all the costs you’ll need to pay at closing (with a bank certified check), as well as a list of the documents you’ll need. If you have any questions about the “good-faith estimate,” please don’t hesitate to ask us for more details.
How long does it take to get a mortgage and purchase a home?
To some extent, that depends on you. If you are organized and prepared, the documentation process will go faster. If you get pre-approved before you start home shopping, it will also speed things up when it’s finally time to apply for your mortgage.
Once you’ve settled on a house, your Realtor® will draw up a sales contract. We’ll order an appraisal of the property. You’ll also need to schedule an inspection. Based on the results of the inspection, more time may be needed to make any repairs required. Once we have the appraisal, and any other information that’s required, we will underwrite the loan. When it’s approved, we’ll send you a Commitment Letter that outlines any closing conditions and tells you to schedule a closing date with your attorney. Often, setting a date for the closing requires working out a schedule that suits the needs of both you and the seller.
Norcom is known for providing its customers with fast decisions and mortgage turnaround. But, typically, the whole process takes between 4 to 6 weeks.
It varies. How much you need depends on the cost of the home you wish to buy, as well as the kind of mortgage you’re looking for. There are three basic costs incurred in buying a house:
A deposit (This is called “earnest money.” It’s submitted with your offer to prove to the seller that you are serious about buying the home.)
A down payment (This is the difference between the amount of your mortgage and the sales price. In some cases, the “earnest money” will constitute the down payment.)
Closing Costs (These are the costs to process and close the loan.)
That depends on the type of mortgage you’re going for. Many mortgages do not require any down payment. Others require only 5% of the purchase price as a down payment. It also depends on your resources. The more you can afford to “put down,” the more equity you’ll have. If you are making a down payment of less than 20%, you will need to purchase mortgage insurance, which will be an additional ongoing expense. Before you determine how much you can afford for a down payment, you should also remember that you will need money for closing costs and moving. You may also want to do some renovations or redecorating. Your Norcom mortgage specialist will be happy to help you, if you have questions about your down payment.
Closing costs may vary from one location to another, but generally they include:
Attorney's or escrow fees
Property taxes (to cover tax period to date)
Interest (paid from the date of the closing to 30 days before the first monthly payment)
Loan Origination fee
First premium of mortgage Insurance (if applicable)
Loan discount points
The first payment to an escrow account for future real estate taxes and insurance
Paid receipt for homeowner's insurance policy (and fire and flood insurance if applicable)
Document preparation fees
It’s a loan that is secured to purchase a house, condominium or other type of real estate. Technically, a mortgage is a lien, or legal claim, that secures a promise to pay back the debt on the property.
The Good Faith Estimate lets you know how much it will cost you to “close” on the property you wish to purchase (i.e. the various fees required). We are required by law to provide you with this estimate, so you will be aware of the costs involved and make an accurate judgment on whether you can afford the mortgage.
A point is 1% of the loan amount. For example, on a $100,000 loan, 1 point would be $1,000. Points are sometimes classified as “origination points” or “discount points.” The former are charged to process and approve your loan; the latter are used to lower or “buy down” the interest rate.
Whether you choose to pay “discount points” to lower your interest rate is up to you. Your Norcom mortgage specialist can provide you with options and work with you to determine the best mortgage for you.
A loan-to-value ratio (LTV) is the amount of money that is to be borrowed compared to the price or appraised value of the home. If, for example, you make a 20% down payment, you will have an LTV of 80% on the loan. If the down payment is 10%, the LTV is 90%, and so on. It is generally accepted in the industry that the less a buyer puts down, the greater the risk to the lender of loss due to default. That is why mortgage insurance is typically required for conventional mortgages where the LTV is 80% or more. Mortgage insurance is also required for all government insured loans. If the LTV of a loan drops to under 78% (as the loan is paid off), the mortgage insurance can be dropped.
The Annual Percentage Rate, or APR, is the interest of the loan – plus any points, costs and other fees that are to be paid by the borrower – expressed in a percentage rate.
In most cases, each mortgage payment includes a payment on the principal (the amount you’ve borrowed), a payment on the interest, as well as a payment to an escrow account (a special account we create) to pay for other expenses like property taxes, or hazard insurance. Lenders often use the acronym, “PITI,” to describe these different payment components: Principal-Interest-Taxes-Insurance.
What is a rate lock?
When you apply for your loan, you can ask us to “lock” the interest rate for a specified time, called the “rate-lock period.” You may also choose to let the rate “float” – or adjust to whatever the market dictates – until it’s time to close on your loan. It might make sense to lock your rate, if rates are trending upward. Conversely, if rates are trending down, it may be to your advantage to let your rate float. The choice is entirely yours. Your Norcom mortgage specialist can discuss the rate lock options with you.
Again, it depends on a number of factors: What’s your financial status? Is it likely to change? How long do you expect to stay in your home? Are you comfortable with changes in your mortgage payment, or do you prefer to know exactly how much it will be each year? Your Norcom specialist can help you decide which type of mortgage is right for you.
Absolutely. In fact, Norcom specializes in meeting the needs of first-time buyers. We have many options that make buying your first home more affordable than you might think. Even if you don’t have much money for a down payment, or you have some “skeletons” in your credit closet, we can usually find a way to make it work. To learn more, read Preparing to Buy a Home. Better yet, talk with a Norcom specialist, who’ll walk you through all the options for first-time buyers.
Getting pre-approved will give you a very good idea of which houses you can afford to buy, as well as which ones will be out of your price range. Pre-approval lets you shop with more confidence and shows sellers that you’re really serious about buying. Your Norcom specialists can help you with the pre-approval process.
You can, depending on which type of mortgage you get. Some mortgages allow you to “roll” your closing costs into the mortgage, so your closing costs can be financed along with the purchase price of the house. Ask your Norcom mortgage specialist to see if you qualify for this type of loan.