Your Mortgage Questions Answered

Dated: 12/05/2017

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Whether it's your first or your fifth time getting a mortgage, the process can be a little overwhelming and somewhat confusing. Unless you're in the business of lending, it's likely some of this may be new to you. We're not going to do a deep dive into mortgages, lending, and the ins and outs of financing because, let's face it, we're not the experts either, but as any good real estate professional should, we're going to give you the basics and hopefully alleviate some of worry and answer a few questions.

Question #1 - What is the difference between a pre-qualification and pre-approval?

Getting pre-qualified requires the least amount of work and, therefore, holds the least amount of weight. When you're going to be making an offer on a home, it is important you do so after obtaining pre-approval from your selected lender. A pre-qualification letter is worth the piece of paper it's printed on. The bank asks you a few questions, typically done over the phone, and vua la you're pre-qualified. For pre-approval, the lender will ask you a series of questions in addition to requiring that you provide documentation of your employment, income, etc. Take that one step further and you get desktop underwritten (DU), basically ensuring your approval for that loan. In simpler words, writing an offer with DU is like shopping for a home with a credit card (you're shopping with the bank's money), whereas, writing an offer with a pre-qual is like shopping with an IOU. In this seller's market we're in today with many multiple offer situations, you want to be playing your best hand. Don't waste your time getting a pre-qualification letter. Do the work and get pre-approved. The sellers will thank you for it and you'll thank yourself when you actually do get the house.

Question #2 - What is amortization?

Amortization is the process of paying off the loan's principal and interest overtime on a consistent payment schedule. At the start, a large portion of these planned payments goes towards paying down the interest. As the loan matures, a larger amount of the payment goes towards the principal.

Question #3 - What types of loans are there?

To simplify the matter, there are two types: fixed and adjustable rate mortgages. With a fixed rate mortgage, the interest rate stays the same for the life of the loan. This is a better way to go if you're buying a long-term property in which you intend to reside for 10 plus years. The most common is a 30-year fixed. On the other hand, with an adjustable rate mortgage, the interest rate may initially start lower, but it can increase exponentially with the maturity of the loan and changes in market conditions. This type of loan can be a good option for those seeking to own a property for a very short period of time in which they can secure a lower rate and sell before the rate increases.

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Kurt Galitski DRE 01348644