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Answers to 3 Common Mortgage Questions

August 26, 2018
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Buyers shopping for Auburn AL homes often have questions about the mortgage process. Here are answers to three of the most common questions asked by homebuyers:

  1. How can I get the lowest interest rate?

To get the best available interest rate on your mortgage, you’ll have to meet some pretty high criteria. These include making a large down payment (usually at least 40%) and having a credit score of 750 or above. Your goal is to make the mortgage company feel confident that you can easily pay back the loan.

A shorter mortgage term (15 years vs. 30) will also get you a lower interest rate. The monthly payments will be higher, but you’ll pay less interest overall, saving you money in the long term

To qualify for the lowest possible interest rate, get your finances in the best possible shape before you apply for a mortgage.

  1. How big should my down payment be?

You’ve probably heard of the 20% down payment as a standard in the mortgage industry. But why is that? Lenders will require you to pay for mortgage insurance if your down payment is less than 20% of the purchase price. This insures they’ll get paid even if you default on the loan.

What if you can’t come up with that amount? There are other options for purchasing a home with a smaller down payment.

One option is an FHA loan. If you meet their requirements, you may qualify to put as little as 3.5% percent down on a house. Military service members may apply for a VA loan to buy a house with no down payment at all. Ask your lender about other options for reducing the down payment amount.

  1. Do I really need private mortgage insurance (PMI)?

If you can make a down payment of least 20% of the purchase price, you will not need to pay for private mortgage insurance. If you’re getting a conventional loan and can’t make the down payment cutoff, ask your lender to cover the PMI for you. They’ll require you to pay a higher interest rate, but the monthly payments could be lower than if you paid the PMI yourself.

Ready to buy a new house? Call Grayhawk Homes today at 706-568-3779 to learn more about our Auburn AL homes.

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