Frequently Asked Questions

A mortgage is a type of loan used to buy a home. It’s a legal agreement between a borrower and a lender, where the lender provides the funds to purchase the home, and the borrower agrees to repay the loan—plus interest—over a set period, typically 15 to 30 years. Mortgages make homeownership possible for buyers who may not have the full purchase price available upfront.

Key Mortgage Terms to Know

• Loan Officer – A mortgage professional who guides you through the loan process, from application to closing, ensuring you find the best financing option.

• Interest Rate – The cost of borrowing money, expressed as a percentage. This rate determines how much extra you’ll pay on top of the loan amount over time.

• Closing – The final stage of a home purchase where all necessary documents are signed, and ownership officially transfers from the seller to the buyer.

• Credit Score – A numerical rating that reflects your creditworthiness. Higher scores indicate lower risk to lenders, potentially leading to better loan terms, while lower scores may result in higher interest rates.

The journey to homeownership typically involves:

1. Pre-Approval: Assessing your financial situation to determine your borrowing capacity.

2. Home Search: Finding a property that fits your needs and budget.

3. Offer and Negotiation: Submitting a purchase offer and negotiating terms with the seller.

4. Loan Application: Completing a formal mortgage application with your lender.

5. Processing and Underwriting: The lender reviews your financial information and the property's details.

6. Closing: Finalizing the transaction by signing documents and transferring ownership.

Pre-Qualification: An initial assessment based on self-reported financial information, providing a general idea of your borrowing capacity.

Pre-Approval: A more rigorous evaluation involving verification of income, assets, and credit, resulting in a conditional commitment from the lender.

Obtaining a pre-approval strengthens your position as a serious buyer. Learn more and contact us today.

Homeownership offers several advantages over renting:

• Equity Building: As you pay down your mortgage, you build equity in your home.

• Stability: Fixed-rate mortgages provide predictable monthly payments.

• Tax Benefits: Potential deductions for mortgage interest and property taxes.

However, it's essential to consider factors like maintenance costs and the commitment involved.

Some key factors lenders consider include:

• Credit Score: Higher scores may qualify you for better loan terms.

• Down Payment: The amount you contribute upfront; some loans require as little as 3% down.

• Debt-to-Income Ratio (DTI): The percentage of your monthly income that goes toward debt payments; a lower DTI is favorable.

• Employment History: Consistent and stable income is crucial.

Amortization refers to the process of gradually paying off a loan through scheduled payments over time. Each payment is divided into two parts:

• Principal – The portion that reduces the loan balance.

• Interest – The cost of borrowing money, paid to the lender.

At the beginning of a mortgage, a larger portion of your payment goes toward interest, while a smaller amount applies to the principal. Over time, as the loan balance decreases, more of each payment goes toward the principal. This structured repayment schedule ensures the loan is fully paid off by the end of the term.

PMI is insurance that protects the lender if a borrower defaults on a loan. It's typically required for conventional loans with a down payment of less than 20%.

Your credit score influences:

• Loan Approval: Higher scores increase the likelihood of approval.

• Interest Rates: Better scores can secure lower rates.

• Loan Terms: May impact the types of loans and terms available to you.

Improving your credit score before applying can lead to more favorable loan conditions. Talk to us if you have questions about your credit score.

While credit affects loan options, we work with lenders that offer solutions for various credit situations. FHA and VA loans, for example, have more flexible credit requirements.

In most cases, you can pay off your mortgage early without penalties. Making extra payments toward your principal can help you save on interest and shorten the length of your loan. However, some loans may have prepayment penalties, so it’s important to review your loan terms or speak with your lender to understand any potential fees. If you're considering early payoff strategies, such as biweekly payments or lump-sum contributions, we can help you explore the best options for your situation.

It is possible to buy a house after bankruptcy, but it may be more challenging and could take some time. Here are some key factors to consider:

1. Waiting Period: After a bankruptcy, lenders typically have a waiting period before you can qualify for a mortgage.

   • Chapter 7 bankruptcy: The waiting period is usually around 2 to 4 years.

   • Chapter 13 bankruptcy: The waiting period can be as short as 1 to 2 years, especially if you've completed the repayment plan.

2. Credit Score: Bankruptcy will have a significant impact on your credit score. After bankruptcy, it’s important to rebuild your credit by:

   • Paying all bills on time

   • Reducing your credit card balances

   • Maintaining a stable financial situation

3. Down Payment: Lenders may require a larger down payment (20% or more) after bankruptcy to offset the risk.

4. Type of Loan: Different types of loans may have different requirements:

   • FHA loans: These are more forgiving and may allow you to buy sooner, especially if you can show you've been rebuilding your credit after bankruptcy.

   • Conventional loans: These tend to have stricter requirements, and you may need to wait longer after bankruptcy before qualifying.

5. Stable Income: Lenders will look for a stable income and a good debt-to-income ratio. Having a steady job and sufficient income can improve your chances.

It’s a good idea to work with a financial advisor or Three Bays Lending Mortgage Broker who can help guide you through the process and ensure you're in the best position to buy a home after bankruptcy.