Home Loan & Mortgage FAQs
Can I still get a home loan with less-than-perfect credit?
Absolutely. Your credit score is just one of many factors that contribute to the types of home loans and the rates that you qualify for. Your down payment, debt-to-income ratio, work history, and the type of home loan you’re interested in are all extremely important as well. One type of home loan for those with lower credit scores are FHA mortgage loans. FHA mortgages allow the homebuyer to put down as low as a 3.5% down payment AND have less-than-perfect credit. Get an idea of what you might qualify for with our Mortgage Loan Calculator.
What are mortgage points?
Mortgage points are fees paid directly to the lender that can reduce the interest rate and, in turn, the overall cost of the loan. Typically, buying one mortgage point is equal to knocking your interest rate down one percentage point. But, depending on the size of your home loan, they’re not always worth it. To learn more about mortgage points, talk to one of our home loan experts today.
What is the difference between interest rate and APR in mortgages?
When it comes to home loans, the interest rate only represents how much it costs to borrow money every year, whereas the APR includes all charges and fees associated with the loan. Therefore, APR is a more accurate representation of the total annual cost of the mortgage. Knowing both is important, but the APR can be an especially useful tool when shopping for a home loan. If you’d like to learn more about what makes one loan better than the other, besides APR, get in touch. Our mortgage experts are here to help navigate the details and work with you to find the right loan type and/or program that will work best for you and your family.
How much of a down payment do I need?
When buying a home, the standard guideline is to pay 20% of the home’s purchase price upfront as a down payment. For example, if you bought a $250,000 home, you would need to provide $50,000 for a 20% down payment.
However, many types of home loans require less than 20% down payment. Some home loans even offer a 0% down payment option, meaning you wouldn’t have to provide any down payment. There are pros and cons to paying less than 20%. With a lower down payment, you can keep more cash on hand for emergencies and other home expenses. You can buy a home quicker rather than waiting until you’ve saved up a big down payment. However, with a lower down payment you’ll pay more interest over time. And, you will likely be required to pay a monthly fee called Private Mortgage Insurance (PMI) until you’ve paid off 20% of your home’s purchase price.
Talk to your mortgage loan officer or financial advisor to decide what's the best for your situation.
What are closing costs? How much will I pay in closing costs?
Closing costs are the fees and charges you’ll need to pay before your home loan can be completed, such as title insurance, homeowners insurance and recording fees.
Closing costs can vary significantly but are generally around 2-3% of your home’s purchase price. You’ll want to take closing costs into account when budgeting for your home purchase. UW Credit Union has a Lowest Closing Cost Commitment – if you find lower closing costs elsewhere, we’ll match it or give you $500.
What is a home loan preapproval and why should I get preapproved?
A home loan preapproval is a conditional statement (usually a letter) provided by a lender stating how much money they would be willing to lend you for your home purchase.
To get preapproved for a home loan, you will need to complete a home loan application and provide some information about yourself. The lender can then determine how much money you would be eligible to borrow. This is not a guaranteed loan, but it gives you a good estimate of what you can afford.
A preapproval is often the first step before you make an offer on a house. It demonstrates to the sellers that you’re a serious buyer and have funds in order to make the purchase. Being a preapproved buyer can give you a competitive edge over a buyer who is not preapproved.
Should I choose a fixed-rate or adjustable-rate mortgage?
There are pros and cons to both fixed-rate and adjustable-rate home loans, depending on your situation and goals.
Fixed-rate mortgages provide a steady payment for the life of the loan. A fixed rate may be right for you if you plan to stay in your home for the long term, if you prefer a consistent payment, and/or if you think rates might go up and you want to lock in a low rate.
Adjustable-rate mortgages (ARMs), also called variable-rate mortgages, have a low rate that’s fixed for a certain amount of time. Once that period of time is up, the rate may adjust periodically up or down depending on the market. An ARM might be a good choice if you plan to move or refinance before your rate adjusts, if your budget could withstand potential rate increases, and/or if you expect rates to go down.
Will my payment stay the same with a fixed-rate mortgage?
Yes, your monthly home loan payment (the principal and interest) will stay the same for the life of the loan. Keep in mind though that other payments related to your home, such as property taxes and utility bills, are not fixed and may change over time.