Have questions about mortgages, refinancing, or loan estimates? Our FAQ section provides clear answers to the most common home loan and refinancing concerns. Whether you’re a first-time homebuyer or looking to optimize your mortgage, we’ve got you covered.

Mortgages:

A mortgage is a loan you take out to buy a house. You borrow money from a bank or lender, then pay it back in monthly installments over 15–30 years, plus interest. The house is the collateral, so if you stop paying, they can take it back. It’s like paying off a giant bill over time.

Credit, income and assets: Those are the big three things lenders look at.

The higher your credit score, the better your chances of getting approved and a decent interest rate.

Lenders want to make sure you have earned income (or enrolled in higher education) over the last two years. They’ll then measure how much of your income would cover the mortgage, and how much goes toward paying other debts (like student loans, car payments, etc.). This is their way of determining your ability to repay the loan

Assets = Down Payment. The more you can put down, the better. A lot of first-time homebuyer and assistance programs offer loans with very low down payments.

With a fixed-rate mortgage, the interest rate stays the same for the entirely of the loan. Conversely, an adjustable-rate mortgage (ARM) allows the rate to change after an initial period (usually 3, 5, 7 or 10 years).

A fixed-rate might be a slightly higher rate, but there are surprises. An ARM is a great way to save with a lower rate, while being comfortable with the rate possibly increasing in the future. 

Much like stock prices, mortgage rates go up and down every day. They’re linked to the 10-year Treasury yield, which is the interest rate the U.S. government pays to borrow money for 10 years). When the yield goes up, mortgage rates tend to go up. When the yield goes down, mortgage rates usually go down.

Since the stock and bond markets are always moving, the 10-year Treasury yield changes every day. And because mortgage rates follow it, your mortgage rate can go up or down daily.

Check out our Loan Compass to see how rates are moving and what mortgage options suit you best.

Good lenders will tell you there is a big difference between what you qualify for and what you’re comfortable with.

Monthly Income: Aim for a mortgage that’s around 25-35% of your monthly income. So, if you make $6K/month, target a mortgage of $1,500-$2,100

Pro Tip: Use our free Loan Affordability Calculator to get accurate monthly estimates and sketch out what you’d qualify for. You can also use Loan Compass to get more detailed mortgage options, without having to talk to a salesperson or get your credit pulled

Refinancing:

The most common examples of when a refinance may make sense:

  • Interest rates are lower than your current rate and/or your credit score has improved
  • You want to refinance from an adjustable rate mortgage (ARM) to a fixed-rate mortgage
  • You’re refinancing out of an FHA loan with lifetime mortgage insurance and into a conventional loan, where PMI isn’t required once you reach a 20% equity position
  • “Life Happens”: You need to consolidate debt or tap into your home’s equity

The key in almost all these instances: You need to calculate the break-even point, which is when the monthly savings will eclipse the costs of refinancing. This could range from a few months to several years.

If you’re considering a refi, use our free refinance calculator to make sure it’s worth it

Refinancing involves closing costs, which can range from 2% to 5% of the loan amount, depending on the lender and type of loan. Usually these costs are lower than

Make sure the long-term savings from refinancing outweigh the initial costs. Use our free refinance calculator here.

It depends on the type of loan you have. FHA and VA loans allow for non-credit qualifying, which means as long as 210 days have passed since you closed escrow, you can do a streamline refinance without a credit pull.

Conventional loans are different, and do require a credit pull. Generally a 620 credit score is a requirement for conventional approval, though the higher the score, the better the loan terms.

Home Buying Questions:

Conventional Loan

Best for: Good credit, stable income, at least 3-5% down. Pros: Rewards buyers with good credit; no PMI if you put 20% down.

FHA Loan

Best for: Lower credit (580-660), and a small down payment (3.5%). FHA loans have lower credit score requirements and a higher allowable debt-to-income, which makes them easier to qualify for than conventional. The downside is, you’re stuck paying mortgage insurance for at least a decade, and if you put less than 10% down, the entire life of the loan.

VA Loan

Best for: Veterans, active-duty military. The VA Home Loan Benefit is a tremendous option to encourage homeownership for those who have served our country. With no down payment and no monthly mortgage insurance, it’s a flexible loan that doesn’t require great credit or super high income. Non-exempt Veterans do have to pay a VA Funding Fee as part of their closing costs, which can be rolled into the loan.

USDA Loan

Best for: Low-to-moderate income buyers in rural areas. With no down payment requirement, USDA is a great program. It does have a stringent debt-to-income requirement than Conventional, FHA and VA, and also has income limitations depending on location and family size.

Pro Tip: Use Loan Compass to get a more precise idea of what fits for you.

Being a first-time buyer means possibilities like cheaper upfront costs, better loan deals and easier access to down payment assistance programs.

PMI (Private Mortgage Insurance) is insurance that protects your lender if you don’t pay your mortgage. If you put down less than 20%, the lender’s at higher risk, so they want some protection if you can’t make your payments.

Conventional PMI can cost anywhere from 0.3% to 1.5% of your loan per year. It depends on two primary factors: 1.) Down Payment and 2.) Credit Score. Once you owe less than 80% of the home’s value, you can ask to cancel PMI.

FHA PMI most commonly 0.55% of your loan per year. If you put 10% down, the PMI will drop after 11 years. If you put less than 10% down, the PMI will remain for the entire life of the loan.

Loan Compass / Loan Watch:

Loan Compass is designed to educate and empower you make a good mortgage decision. We’ve boiled down the most important parts of what lenders look for so you can get an accurate assessment of what loan works best.

We hate seeing people wasting money when they don’t know they’re wasting money. Rate is obviously important and part of our calculation, but often buyers don’t know what it’s costing them to get that rate.

Our AI-assisted formula measures your loan costs and your interest rate to score your deal.  

With more than 25 years in combined lending and tech experience, we built these tools to accurately pinpoint your situation. By providing some basic (but never personal) information, Loan Compass can give you a comprehensive view of your loan options, and Loan Watch can score your offers from various lenders.

That said, we are not a lender so we don’t have a dog in this fight. We’re an independent, non-lending entity passionate about you learning more – and feeling confident — about loans, before you sign paperwork.

In less than two minutes, you can determine what loan best suits you (Loan Compass) and assess whether the loan offers you’re receiving are good deals (Loan Watch). Simply answer some basic questions and get peace of mind about your future and your wallet.

Calculator-Specific Questions

Using a mortgage amortization calculator is a great way to better understand how your mortgage works, track your payments, and plan for the future. By inputting your rate, loan amount and term (length of mortgage), you can calculate your total interest costs, and explore how different payment strategies can help you save money and pay off your mortgage faster.

A yearly amortization schedule will project what your mortgage balance will be at a certain point (3,5,7, etc.) years into the future, and how much interest you will have paid between now and then.

A monthly amortization schedule is more granular, letting you zero in on an exact month in the future.

Both are great tools, it’s really just personal preference and how deep you want to go with your loan analysis.

Yes, any dollar amount you pay above the monthly mortgage payment goes towards principal. The faster you pay down the principal, the less interest you will pay over time, because interest is calculated on the remaining balance of the loan.

Calculator, Cost and Decision-Making:

All Loan Estimates are in the same format. That’s by design, to make it easier to compare loan offers.

The key things you want to compare are 1.) Interest Rate and 2.) The fees in Section A of the Loan Estimate. Section A is where the lender is required to disclose things like discount points, origination fees, broker compensation – these are often sizable charges that can differ greatly from lender to lender.

You can go through the process of applying to a bunch of different lenders, consenting to credit pulls, uploading paystubs and W2s.

Or you can work with a broker, who “shops around for better rates” – but in reality that broker has preferred partnerships with certain lenders that give them perks.

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