Mortgage 101 FAQs
Whether you’re at the beginning of your mortgage journey, going through it all for the time, or just need some refreshers…
We can help!
What goes into a mortgage payment?
Your mortgage payment can (and often does) include more than your principal payment and interest fees.
Principal Payment:
Amount of money borrowed (not including interest) to purchase home.
Interest Payment:
Percentage amount charged to borrow money.
Tax Fees:
Determined by city/local government/school district lived in, based on property's value.
Insurance Payment:
Homeowner's insurance and possibly Mortgage Insurance, varies by loan product.
Pre-approved vs. Pre-qualified
Getting pre-qualified is like the lender taking a guess. You provide some basic information and in return receive a general idea of what you might be able to afford. Maybe…possibly.
On the other hand, if you’re pre-approved your info has been verified and confirmed. You’re a legit buyer who’s walking the walk to back up the “I want to buy your house” talk.
While you can look at a house without being approved for the loan - you can’t sign the final papers and purchase a home without being approved for the loan. So a pre-approval letter is doing the work ahead of time to show your Realtor and the sellers that you mean business.
5/5 stars, we highly recommend the pre-approval route.
How do I find the documents you're asking for?
We get it, remembering if you get electronic statements or paper documents for each of the items requested can be tough.
To give you a place to start, besides looking in the couch cushions and behind the stove, you might find have luck with these common forms:
Bank Statements - Online banking, paper statements filed away, or if all else fails, call the bank and request they provide the most recent two months statements for you
Identification - Drivers License or VISA in your wallet or purse (we only need the front!), your social security card might be the same or in a lock box at home or the bank
Federal Tax Returns - (state returns not needed) Your CPA or online tax system may keep records for you. You may have downloaded them to your computer after they were complete or they could be printed and in your filing cabinet.
Worst case, you can get them directly from the IRS (hint: it's not typically the fastest!).
W-2s & 1099s - Locate all the documents you provided to your CPA, they should be included. They are NOT typically part of your actual tax returns. There could be a different version in there, but not all underwriters accept that one.
Contact your employer! They have to keep records for several years, so they should be able to provide you with a copy! You can contact your CPA, if applicable.
Or, if all else fails, you can get them directly from the IRS (hint: it's not typically the fastest!).
Paystubs: Company intranet, email, mailed stubs filed away. You can always contact your HR department to get copies of the most recent 30 days worth (5 weekly, 3 bi-weekly, 2 semi-monthly, 1 monthly)
Retirement and Disability Award Letter: You should have received this once you first started receiving this income type and if you’ve been receiving it for more than a year, you may receive annual statements.
For Social Security, you can find the award letter online by using this link.
What should I NOT do during the mortgage process?
If you’re in the process of buying a house - ESPECIALLY if closing on a mortgage loan within a few months, take a pit stop in Snooze-ville because now is the time to be boring.
In general, avoid anything that requires opening up a new line of credit. Auto loans, credit cards, etc. Just don't.
Ignoring and not replying to your lender or Realtor is another big “no-no” during this time. We’re here to help you, so keep us in the loop and get back to us with any information needed.
Now isn’t really a great time to change jobs - and if you can hold off until after your loan closes, that would be best.
What do I need to know about credit scores?
Credit scores help the lender determine your credit risk which determines your rates and your eligibility to buy or refinance a home.
Credit scores are made up of payment history, amounts owed, length of credit, variety of credit, and new credit/inquiries.
If you have detailed questions about your credit, we’d love to chat!
Team Chedester has extensive knowledge of credit and even is qualified to educate consumers through the Freddie Mac Credit Smart course.
Monitor your credit score and credit trends online.
More questions - reach out today!
More info on credit -
What is an inspection?
A home inspection is a hired service that is reviewing the home for your benefit.
A home inspector will review the bones of the house, the aesthetic aspects, and the exterior of the home. Their job is to be sure you fully understand what you are getting.
If it is a new build, we still encourage a home inspection to be completed, as it’s a third-party that is looking out for your best interest. Your builder may have unintentionally missed something and the home inspector will be able to catch that, to help you be confident in your final closing!
While not required, we highly recommend having an inspection performed before purchasing a home.
NOTE: A home inspection is NOT the same thing as an appraisal. An appraisal is typically an interior inspection of a home that verifies the collateral value for the lender. Their job is not to find issues with the home that will help you as the buyer, but sometimes their findings can benefit you.
What is an appraisal?
An appraisal is typically an interior inspection of a home that verifies the collateral value (how much it’s worth) for the lender.
The appraisal includes images of the inside of the home to verify the number of bedrooms, bathrooms, and to show the validity of the appraisal to the lender.
Appraisers are also checking the value of the property against that of other homes in the area. An appraisal includes comparable homes that are as similar to the subject property as possible - since no two homes are ever exactly alike.
Some investors and loan types have their own set of requirements for appraisals, so the appraiser will be looking to meet those for you as well. A conventional loan appraisal is less conservative than an FHA loan appraisal, either way, the appraiser has to be the eyes on the house, ensuring the home meets those requirements.
What about homeowners insurance?
Homeowners insurance is a requirement whenever a loan is held against the property.
While it is not required if the home is owned free and clear of any loans, it is still recommended to have insurance to protect against natural disasters, fire, and any other loss.
Homeowners insurance must cover at least the loan amount, as the investor wants to ensure that there is enough coverage to pay their loan back in the event of a loss.
Contact us if you want a referral to an awesome agent for home insurance. We’ll be happy to connect you.
What about mortgage interest rates?
Rates are constantly changing, daily, hourly, even multiple times per hour. This is because rates are directly tied to Mortgage Backed Security (MBS) prices. MBS prices move like the stock market, up and down constantly, when the market is open.
As MBS prices get higher, mortgage interest rates get lower.
What is PMI?
Private Mortgage Insurance is required by your lender when you have less than 20% of purchase price for your down payment, or less than 20% equity on a refinance.
This insurance isn’t for your benefit, it’s to protect the lender in the event that you default on the mortgage. We’re all rooting for you, and no one wants to see that happen, it’s a “just in case” thing.
The industry has determined that on average, if a buyer has 20% equity or “skin in the game” then they are much less likely to stop making their mortgage payments. The lenders are in the business of making money and they want to see you stay in your home so they can keep making that interest on the money lent.
If you put down less than 20%, once you have 20% of the original value (or 20% of a new value, if the lender orders another appraisal at your request), you can request the lender remove the mortgage insurance. It automatically is removed once you reach 22% equity or 78% loan-to-value.
What about down payments and closing costs?
Your minimum down payment is determined by the loan type you are using or qualified for. This can range from 0% - 5% minimum, up to as much down as you would like.
Keep in mind that there are costs associated with buying a house. You will have an appraisal, title work and abstract updates, recording fees for recording your ownership with the county, setting up of your escrow account, and prepaying some of your taxes, insurance, and/or interest.
There are many costs that need to be accounted for, but your lender should be able to provide more details on those, depending on your specific situation.
What are the different types of loan options?
There are lots of loan options out there to fit a variety of home buying situations.
At Team Chedester we work with FHA, USDA, VA, and Conventional loan types.
We also offer Renovation loans, Refinancing options, and Pre-Qualifications & Pre-Approvals for buying a home!
What’s this spreadsheet you keep mentioning?
We LOVE spreadsheets! We know they aren’t for everyone, but they can be a great tool to lay out all of your options.
This is something we do for every person that comes to us and is ready to buy.
We love to show you all of your options so you can tell what your estimated monthly payment will look like, your estimated cash to close (including down payment and closing costs), and to compare the different product types against each other so you can see and determine which makes sense for you!
Our goal is to be sure you are well informed and educated on the process so you can make your OWN decision!
(Here’s an example, below.)
We LOVE spreadsheets! We know they aren’t for everyone, but they can be a great tool to lay out all of your options.
This is something we do for every person that comes to us and is ready to buy.
We love to show you all of your options so you can tell what your estimated monthly payment will look like, your estimated cash to close (including down payment and closing costs), and to compare the different product types against each other so you can see and determine which makes sense for you!
Our goal is to be sure you are well informed and educated on the process so you can make your OWN decision!
(Here’s an example, below.)
What happens to my loan after we close?
With Team Chedester, we will work with you all the way up until you sign the closing disclosure with the attorney and close on the loan. From there, your deed and mortgage will get recorded with the county.
Once you close, your loan will be taken over by a servicer and your loan documents will be sent to the loan servicer.
We search for the best lender that fits your situation to give you multiple options from the start. That servicer will take a bit to setup your new loan in their system before sending out your initial welcome packet.
If you get to your first payment and have not received a packet, reach out to your loan officer and we are happy to assist with that!
We here at Team Chedester also feel it is important to continue to keep in touch with you, even though we won’t collect your monthly payments. As your life changes and evolves, we want to be your go-to resource. We will follow up every so often. If you have updates, we’d love to hear them!
Can I refer you?
YES, YES, YES! Referrals are a huge part of our business and are ALWAYS appreciated.
Please share our name and info with anyone you think we can serve. We love to help others and value referrals from past customers
Have another question?
We’d be happy to answer!
Contact Us
2753 99th St, Urbandale, IA 50322
Charles: (515) 229-6564
Kyle: (319) 850-2435
Fax: (866) 424-0683
[email protected]