FAQs for Home Loans
What are some qualification requirements to be approved for a mortgage?
- Credit Score - Each lender’s credit score guidelines vary, however the minimum credit score for a conventional loan is usually 620.
- Down payment & closing costs - Money saved for your down payment, closing cost or maybe just some reserves in the event that you find yourself in financial difficulties down the road.
- Debt to Income ratio - All lenders have their own established DTI underwriting guidelines, however a DTI of 50% or less is the typical benchmark. To calculate your current DTI, add your potential mortgage payment + auto payment(s) + child support + credit card payments and divide by your gross monthly income.
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Do I have enough for a down payment and/or closing cost?
- Down Payment - It is commonly known that a 20 percent down payment helps you to avoid having to pay mortgage insurance. You can still get a conventional mortgage with as little as 3 percent down payment with private mortgage insurance. There are options depending on your lender and programs that are available that may assist with down payments or closing cost. At a minimum you will want to have at least 3% of the desired mortgage amount saved. Some lenders have special programs which eliminate the need for a down payment. However, even in these instances, you will still need to have funds for closing costs.
- Closing costs - Can include fees such as loan processing fees, appraisal for the property you are looking to buy, title search and title fees, property taxes, insurance and basically all the costs that are involved in getting your mortgage contract finalized. An estimate of your closing cost would be about 2 – 5% of the purchase price.
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What is Private Mortgage Insurance (PMI)?
- Private Mortgage Insurance - Covers conventional mortgage lenders when borrowers put down less than 20% of the home’s purchase price. Private mortgage insurance is typically added to the borrower’s monthly payment if applicable. Sometimes lenders have special programs which eliminate the need for PMI – even if you put down less than 20%.
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Interest Rate vs. APR
- The interest rate is the price you pay to borrow the principal loan amount over a period of time.
- The APR represents the total cost involved to borrow money. It is usually higher than the interest rate as it accounts for things such as closing costs and fees associated with the loan.
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Am I ready to buy a home?
There are several mortgage calculators available on the internet that can provide you with a general idea of what your estimated monthly payments would be based on approximate values. Use these tools to determine the loan amount and monthly payment you are comfortable with. Here are some suggestions:
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Gold Coast Federal Credit Union (NMLS#442117). By law, residential mortgage loans are to be considered without regard to ethnicity, race, sex, age, and income. The federal government collects this information by authority of the Home Mortgage Disclosure Act.
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