Frequently Asked Mortgage Question From Homebuyers

Gustan Cho Associates works with many families in different areas of the country. However, our clients commonly ask similar questions. This blog will detail some of the most common questions we receive. We will also discuss how to apply for a mortgage with our highly skilled team. Christy Hembree, a senior mortgage loan originator at Gustan Cho Associates, says the following about frequently asked mortgage questions from homebuyers.

If you are a regular reader of our website, you will know that we help many families with less-than-ideal credit scores.  The mortgage process can be confusing, so it’s important to choose a mortgage team that can get you to the finish line.

Buying a home is a large investment, and we ensure all our clients understand every step of the process. In the paragraphs below, we will go over frequently asked mortgage questions by first-time homebuyers on purchase transactions and homeowners on refinances.

What Is The Minimum Credit Score Required For A Mortgage Approval?

What is the minimum credit score required by Gustan Cho Associates? This is a loaded question because the credit score requirements will vary depending on which type of mortgage you are seeking. Since the Gustan Cho Associates do not have any lender overlays, we can go down to the minimum qualifying credit score per agency guidelines. We do not have a minimum credit score requirement for our veteran clients. The U.S. Department of Veterans Affairs does not have a minimum qualifying credit score for VA mortgage lending.

Which Credit Bureau Is Used By Mortgage Lenders?

Which credit bureau do you use to qualify? Just like all mortgage companies, we require a Tri-Merge credit report. This means we utilize all three credit bureaus: TransUnion, Equifax, and Experian. The scoring models are the 2,5, and 4 scoring systems. To be more exact, we use TransUnion CLASSIC 04 SCORE, Equifax BEACON 5.0 SCORE, and Experian FAIR ISAAC SCORE 2.

We will then utilize the minimum middle credit score. It is not an average of your credit scores; it will simply qualify based on whatever score is in the middle.

So, if your credit scores are 570, 605, and 628, your qualifications will be based on your 605 middle score. For more information on credit scoring, please contact Mike Gracz at (800) 900-8569, or you may email mike@gustancho.com.

Buying Versus Renting a Home

Should I stick to renting or should I purchase a home? If you can purchase a home, you should pull the trigger. The housing market is appreciating at a rapid pace. Experts, do you think the rapid appreciation will slow down to normal appreciation? The keyword in that sentence is appreciation.

Building Equity And Net Worth By Owning Your Own Home Versus Renting

The sooner you can enter the housing market, the more time you have for your home to increase in value. When you rent, you do not build equity in the property. We do understand there are perks to renting, such as limited responsibility. That way, when something major goes wrong in the house, you are not responsible; your landlord is. However, to build steady wealth over your lifetime, investing in real estate is considered to be one of the
safest options.

What Are The Tax Benefits of Homeownership

What are the tax benefits of homeownership? This is a very important question. The tax benefits of owning a home are one reason why owning a home is better than renting. You can take deductions for mortgage interest and real estate taxes paid. If you pay discount points to purchase a home, that amount is also a tax deduction. As a first-time homebuyer, you do not need to worry about capital gains, assuming you live in the house for two or more years. As your income increases, tax deductions are more and more important.

How Long Do I Need To Stay In The Home I Buy To Make It Worthwhile

Planning involves many questions. One common one is, “How long do I need to stay in the home to make it worth it?” This is a difficult question to answer because everybody’s situation is different. However, if you plan to stay in the home for five years or more, we strongly suggest buying rather than renting.

We strongly encourage you to buy if you will not stay in the home for five years and can rent it after moving out. However, if you will only be in the area for one to two years, buying the home might not be the best idea.

The reason is that you do pay closing costs when you sell a property. You must pay realtors and title fees as well as any property taxes due. Unless you put down a large down payment, you may be unable to sell without losing money. Again, planning is very important when making a major life decision.

Can I Have Unpaid Collection Accounts To Qualify For A Mortgage?

I have collected and charged off accounts on my credit report. Do you think I can still get a mortgage? The answer to this question is yes. Gustan Cho Associates works with many borrowers who have collection accounts. We even work with individuals who have numerous collection accounts. The general rule of thumb surrounding collections is as follows.

The collection must be at least 12 months old. If it is older than 12 months, 5% of the total balance will be used as a monthly payment.

So, let’s say you have a collection for $2,432. In this scenario, your lender will use $121.60 against your debt-to-income ratio (5% of $2,432). There are situations where it does not make sense to pay a collection. Sometimes, paying a collection can negatively impact your credit score. We know that sounds backward, so if you have any questions about collections (or any other derogatory credit), please get in touch with our team. You can reach Mike Gracz at (800) 900-8569 or mike@gustancho.com.

What Should I Expect During The Home Buying Process As A First-Time Homebuyer?

Gustan Cho Associates specializes in working with first-time homebuyers. We understand how daunting the process can sound, and our job is to make it as seamless as possible for you.

The process will start with a one-on-one mortgage consultation with one of our licensed loan officers. From there, you will apply with our team (or one of our affiliate partners, depending on where you are located).

After you fill out your application, you will send in some basic income and asset documentation. Your loan officer will then reverse engineer the numbers based on your assets available, yearly income provided from pay stubs, W-2s (and sometimes tax returns), and your credit profile.

Shopping For A Home To Buy After Being Pre-Approved

Once you are issued a preapproval letter, the house hunting starts. This is the fun part! You and your realtor will find the home of your dreams and then put in an offer. Once your offer is accepted,

Gustan Cho Associates will walk you through every step of the process from start to finish. Our team is trained to help answer any questions you or your realtor may have during the entire process.

As mentioned above, we work with many first-time homebuyers and will educate you on every step of the process. In some cities, such as Miami, rents have gone up by an average of 30%. If you were locked into a 30-year fixed mortgage, your payment would not increase anywhere near that amount. This will help you prepare for future purchases and family planning.

How Do I Find Out How Much Home I Can Afford?

To find out how much home you can afford, you will contact our team and start the preapproval process. Just because a guideline says you can afford a $2800 mortgage payment does not mean that is the best decision for you.

Gustan Cho Associates has no lender overlays surrounding debt-to-income ratios, but we want to ensure our clients are comfortable with their monthly payments.

Agency guidelines are put in place to protect people from buying homes they cannot afford.

The Ability To Repay My New Mortgage Payment

Every mortgage loan must pass the “ATR rule,” which stands for the ability to repay. Just because the guidelines say you can afford a certain payment, this does not mean you need to go up to that amount. Most importantly, our team is trained to ask questions about your monthly budget.

We want to ensure that you obtain a home with a comfortable monthly payment now and, more importantly, into the future.

It is important to prepare for the unexpected when owning a home. A homeowner insurance deductible typically starts at $1000, a substantial chunk of change. As homeowners, we want to ensure you don’t use all your available assets to purchase a home.

What Is Mortgage Insurance?

The majority of first-time homebuyers will pay mortgage insurance, and many borrowers will pay upfront mortgage insurance. Now, you may be asking, What is mortgage insurance?

Mortgage insurance protects the lender when a homebuyer does not make a 20% down payment. The majority of first-time home buyers do not put down 20%.

That said, mortgage insurance will protect the gap between 80% loan-to-value (LTV) and your down payment amount for the lender. Mortgage insurance is different from homeowners’ insurance. This is critical.

What Does Protection Do Homeowners Insurance Cover

Homeowners insurance will protect you if something goes wrong with your property, such as a fire or physical damage. Once again, mortgage insurance is only there to protect the lender. Paying mortgage insurance allows most first-time homebuyers to enter the housing market because they do not require a 20% down payment. Let’s go over mortgage insurance for FHA mortgage lending.

FHA Mortgage Insurance Premium

FHA mortgage lending has a standard 1.75% upfront mortgage insurance premium and a monthly premium of 55 basis points. If you put down 5% or greater, your mortgage insurance is only 50 basis points monthly. We understand these terms may be confusing. Please feel free to call our team if you have any questions.

Frequently Asked Mortgage Questions: Will My Payment Change After I Buy A Home?

This is a great question and comes up quite frequently. Most mortgage programs offered today are fixed-rate mortgage loans, which means your principal and interest payment will be the same for all mortgage payments.

But that does not mean your monthly payment cannot change. Most first-time homebuyers must pay their taxes and insurance through their monthly mortgage payment, but through an escrow account.

Your lender will collect 1/12 of your monthly tax bill and 1/12 of your homeowners’ insurance premium. This way, when you make your 12 monthly payments each year, there will be enough money in your escrow account to pay your property taxes and insurance when they are due next.

Frequently Asked Mortgage Questions Homebuyers Ask the Most About Home Loans

If you’re wondering how a mortgage works, check out the answers to the most frequently asked questions from homebuyers. This includes how loans work, credit scores, the average down payment, and the closing cash needed. This will help mortgage homebuyers get more answers to their questions from professionals.

Defining the Mortgage Process  

What Is A Mortgage, And How Does It Function?  

A mortgage is a type of loan used to purchase real estate, and it is usually secured by the real estate itself. A mortgage is a loan secured by the property purchased as collateral, obtained from a lending institution, and paid back with interest, usually after 15 to 30 years.

What Are The Steps Involved In Obtaining A Mortgage?  

• Home loan pre-approval.
• Home loan application.
• Home loan underwriting, processing, and closing
• Every step involves paperwork, credit score checks, and other financial assessments.

Loans and The Different Types of Mortgages  

What Are The Most Popular Mortgage Types?  

• Fixed-rate mortgage: The interest stays the same.
• ARMs change rates after a predetermined period to a fixed rate.
• FHA loan. First-time buyers and loans got backed by the government.
• VA loan: No down payment required by the eligible veterans.
• USDA loan: Properties in rural areas frequently require no down payment.

Which Mortgage is The Best For First-Time Buyers?

People love the less stringent terms and conditions. However, the ultimate decision will center around the user’s situation and future objectives.

Credit, Income, and Down Payments

What Credit Score Do I Need to Qualify?

Most lenders require a conventional loan with a score of at least 620. With a down payment of 3.5%, FHA loans are willing to negotiate with those with a score of 580.

How Much Income Do I Need to Earn?

The lenders are concerned with the debt-to-income (DTI) ratio to determine affordability. A ratio of 43% or lower is generally more desirable.

How Much Should I Put Down?

While 20% is the ideal down payment to forgo paying Private Mortgage Insurance (PMI), a certain number of loans allow down payments of 3 to 5 percent at minimum.

Closing Costs and Fees

What Closing Costs Entail

The closing costs are an expense between 2 to 5% of the house’s purchase price, and the closing costs come with:

• Appraisal fees.
• Title insurance.
• Loan origination fees.
• Escrow deposits.

Can Closing Costs Be Negotiated

Absolutely! You can contact Offers on services like title insurance and request that the seller help with closing costs.

Mortgage Rates and Refinancing

What Determines The Rates of a Mortgage

Some of the factors include:

• Credit score.
• Loan type.
• Loan Market.
• Loan term.

How Soon Can I Start to Think of Refinancing

Refinancing is a great option if:

• Interest rates are down.
• Your credit score has increased.

You want to change the type of loan or the terms of the loan.

Frequently Asked Questions (FAQs)

Can I Get a Mortgage With a Student Loan?

• Yes, if your DTI is okay and you follow certain guidelines and criteria.

What Documents Do I Need For a Mortgage Application?

Usually, it’s:

• Income proof – Pay stubs, W2 forms, etc.
• Income Tax Returns.
• Statements on Bank Accounts.
• Government-issued identification, SSN.

How Long Does Mortgage Approval Take?

• Most borrowers take between 30 and 45 days, highly dependent on the lender and the client’s finances.

What is PMI and How Can I Avoid It?

• Private Mortgage Insurance is a policy the lender takes out if the borrower defaults on the payment.
• You can avoid PMI by making a down payment of 20% or more.

Should I Get Pre-Approval Before House Hunting?

• There is no doubt that it is a must.
• A pre-approval letter increases the strength of your offer and gives greater clarity of the finances.

Mortgage Escrow Required By Lenders

Your monthly payment can increase if your property tax rate is out of your control. If you decide to take out more insurance coverage or your insurance premium increases, your monthly payment will increase slightly. Your payment will be steadier compared to renting.

If you have been renting for numerous years, I’m sure you have felt the rent increase over the past 12 months. Rents have increased at an alarming rate in the past 12 calendar months.

If you have any mortgage questions that are not discussed in this article, please call Gustan Cho Associates today. We strive to make ourselves available on nights and weekends to accommodate our clients. We are experts in mortgage lending and would love the opportunity to answer any questions you may have. As we enter 2026, our team will continue to update you on any guideline changes. Please take a look at our reviews and give us a call today!