Mortgage FAQs — Common Questions Answered | VERDE ONE

Question 1

What is the difference between a fixed-rate and adjustable-rate mortgage?

Accepted Answer

A fixed-rate mortgage has the same interest rate for the life of the loan, providing predictable monthly payments. An adjustable-rate mortgage (ARM) starts with a lower fixed rate for an initial period (typically 5, 7, or 10 years), then adjusts periodically based on market rates. ARMs can be advantageous if you plan to sell or refinance before the adjustment period begins.

Question 2

How much down payment do I need to buy a home?

Accepted Answer

Down payment requirements vary by loan type: conventional loans typically require 3–20%, FHA loans require 3.5% (with a 580+ credit score), VA loans require 0% for eligible veterans, and USDA loans require 0% in qualifying rural and suburban areas. A local mortgage advisor can help you identify the best program for your situation.

Question 3

What is PMI and how can I avoid it?

Accepted Answer

Private Mortgage Insurance (PMI) is required on conventional loans when your down payment is less than 20%. It typically costs 0.5–1.5% of the loan amount annually. You can avoid PMI by putting 20% down, using a piggyback loan (80/10/10), or choosing a lender-paid PMI option. PMI is automatically removed when your equity reaches 20%.

Question 4

What is a HELOC and how does it work?

Accepted Answer

A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by your home's equity. You can borrow up to your credit limit, repay it, and borrow again — similar to a credit card. HELOCs typically have variable rates and a draw period (usually 10 years) followed by a repayment period. They're commonly used for home improvements, debt consolidation, or major expenses.

Question 5

When does it make sense to refinance my mortgage?

Accepted Answer

Refinancing typically makes sense when you can reduce your interest rate by at least 0.5–1%, when you want to change your loan term, when you need to access equity, or when you want to remove PMI. The "break-even point" — when your savings exceed your closing costs — is typically 2–3 years. A local mortgage advisor can run the numbers for your specific situation.

Question 6

What credit score do I need to get a mortgage?

Accepted Answer

Minimum credit scores vary by loan type: conventional loans typically require 620+, FHA loans require 580+ (or 500+ with 10% down), VA loans have no official minimum but most lenders require 620+, and USDA loans typically require 640+. Higher credit scores qualify for better rates — improving your score before applying can save thousands over the life of the loan.

Question 7

What are closing costs and how much should I expect to pay?

Accepted Answer

Closing costs are fees paid at the closing of a real estate transaction, typically 2–5% of the loan amount. They include lender fees, title insurance, appraisal, attorney fees, and prepaid items like property taxes and homeowners insurance. Some costs are negotiable, and sellers can sometimes be asked to contribute to closing costs.

Question 8

What is pre-approval and why do I need it?

Accepted Answer

Mortgage pre-approval is a lender's conditional commitment to lend you a specific amount based on a review of your credit, income, and assets. Pre-approval is essential in competitive markets because it shows sellers you're a serious, qualified buyer. It also helps you understand your budget before you start shopping.

Mortgages FAQs

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Mortgage Frequently Asked Questions

Mortgages FAQs

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