Preparing to buy your first home can be intimidating, but educating yourself on the process makes it less overwhelming. Read below for our most commonly asked questions from first-time homebuyers.
1. What credit score do I need to get approved for a mortgage?
For most loan products, 640 is the preferred score for most lenders. While there are some options (especially with FHA products) that will accept lower scores, they are limited and come with higher interest rates.
2. What information do I need to provide to get a mortgage?
While each transaction is unique and may require different documentation, in general you can expect to provide the following:
Income verification (tax returns, W2s, 1099s, paystubs)
Drivers license and social security card (or alternative ID)
Proof of funds to close (bank statements)
3. How much do I need for a down payment?
Down payment requirements will vary by loan type: Conventional loans usually require 5%, FHA as little as 3.5%, and VA or USDA require no down payment.
4. What are closing costs and how much will they be?
Closing costs are all the charges associated with completing the loan. These can include but are not limited to origination and lending fees, title insurance, prepaid interest, etc. Closing costs will vary, but are typically around 1.5-2% of the home's price.
5. What does it mean to get pre-qualified for a loan?
Pre-qualification is a basic review of your finances to estimate how much of a loan you would qualify for pending all information you provided was accurate. This can be helpful very early in the home buying process when you are first starting your planning and budgeting.
A pre-approval is a more in-depth verification process that generally includes a credit check and verification of income and employment. This is especially helpful when you are closer to working with a realtor, looking at homes, and putting in a purchase offer. In fact, most realtors will not show homes until their client has been pre-approved.
6. What type of loan should I get?
There are different loan options to meet the needs of various individuals. A conventional loan may be best for individuals with higher credit scores while an FHA loan is typically easier to qualify for with those with lower credit scores. VA loans are often a good choice for veterans. USDA loan may be an option for those purchasing in a rural area. Reviewing your background and needs with a loan expert is the best way to determine the loan option that best meets your needs.
7. What is "buying down the rate" and is it a good idea?
Buying down the rate refers to using discount points to purchase a lower interest rate. Whether or not this is a good idea depends on how long you plan to stay in the home and if the savings outweigh the costs. The average person sells or refinances every 3 to 5 years, so they are not likely to benefit financially from buying down a lower interest rate.
8. Should I get a 15-year or 30-year mortgage?
This depends on your financial goals and budget. A 15-year mortgage typically comes with a lower interest rate than a 30-year mortgage; however, due to the shorter term the monthly payment is generally higher. If you can afford the higher payment, you will pay off the loan faster and pay less interest over the life of the loan. A 30-year mortgage will allow you to have a lower monthly payment. This could allow you to purchase more home for your money, or secure a home in your target neighborhood.
9. What is an escrow account?
An escrow account is a holding account established for each transaction where funds that are waiting to be disbursed are held. In most cases this account is with a Title company.
10. How long does it take to close on a mortgage?
This will depend on your lender and the complexity of your individual file. In addition, if you have been pre-approved with your lender it will greatly expedite the loan process. It is important to ask your lender their average close time before starting the loan process. Many lenders take 45-60 days from loan submission to closing. O Capital Group, however, averages 15 days or less from loan submission to closing. In a competitive sellers market like we have today, your ability to close quickly may make the difference in whether or not your offer is accepted.
Hopefully this information has helped you feel a little more comfortable with home loan basics. Feel free to connect with any other questions you may have. Follow us at @ocapitalgroup for tips and home loan education. Or, if you are in Arizona, call us at
(602) 492-8930 for a free, no obligation consultation.
At O Capital Group, we make home loans easy!
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This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.