Buying a home can be a scary prospect and one of the biggest decisions you and your spouse will make, so if you are in the market for a house, most likely you’re also in the market for a mortgage. As with all important decisions, the best way to approach the mortgage process is to be informed. Below are the first six of some of the most common questions asked about mortgages. Whether you’re buying a home now or think a new home is simply a dream, the information below will help you gain the tools you need to make this decision with confidence.

1. Can I apply for a loan before I find a property to purchase?

Yes, applying for a mortgage loan before you find a home may be the best thing you could do. When you apply in advance, we issue a pre-qualification letter subject to your finding your new home. You can use the pre-qualification letter to assure real estate brokers and sellers that you are a qualified buyer. The pre-qualification process helps assure that you are looking in the right price range to comfortably fit into your budget. Having been pre-qualified for a mortgage may also give more weight on any offer you make.

2. Will my overtime, commission, or bonus income be considered when evaluating my application?

In order for bonus, overtime or commission income to be considered, you must have a history of receiving it and it must be likely to continue. Usually, we will request copies of W-2 statements for the previous two years and a recent pay stub to verify this type of income.

3. What is a credit score and how does it affect my application?

A credit score is one of the pieces of information that the bank uses to evaluate your application. Credit scores are based on information collected by credit bureaus and information reported each month by your creditors about the balances you owe and the timing of your payments. A credit score is a compilation of all this information converted into a number that helps a lender determine the likelihood that you will repay the loan on schedule. The credit score is calculated by the credit bureau, not by the lender. Credit scores are calculated by comparing your credit history with millions of other consumers. They have proven to be a very effective way of determining credit worthiness.

Some of the things that affect your credit score include your payment history, your outstanding obligations, the length of time you have had outstanding credit, the types of credit you use and the number of inquiries that have been made about your credit history in the recent past.

4. Can I use a gift from someone else for my down payment?

Gifts are an acceptable source of down payment, if the gift-giver is related to you or your co-borrower. We ask you for the name, address and phone number of the gift-giver, as well as the donor’s relationship to you. Then we have to verify that the gift funds were indeed transferred to you

5. How are interest rates determined?

Interest rates fluctuate based on a variety of factors, including inflation, the pace of economic growth, and Federal Reserve policy. Over time, inflation has the largest influence on the level of interest rates. A modest rate of inflation will almost always lead to low interest rates, while concerns about rising inflation normally cause interest rates to increase. Our nation’s central bank, the Federal Reserve, implements policies designed to keep inflation and interest rates relatively low and stable.

6. Should I pay points in exchange for a lower interest rate?

Points are considered a form of interest. Each point is equal to one percent of the loan amount. You pay them up front at your loan closing in exchange for a lower interest rate over the life of your loan. This means more money will be required at closing. However, you will have lower monthly payments over the term of your loan. To determine whether it makes sense for you to pay points, you should compare the cost of the points to the monthly payments savings created by the lower interest rate. Divide the total cost of the points by the savings in each monthly payment. This calculation provides the number of payments you must make before you actually begin to save money by paying points. If the number of months it takes to recoup the points is longer than you plan to have the mortgage, you should consider the loan program option that does not require points to be paid.

Next week, we’ll explore 15- vs. 30-year mortgages, appraisals, mortgage insurance and home inspections

Eli Garfinkel of Funding Resources Mortgage Company is an experienced and reputable loan officer. With a list of extremely satisfied clients, Eli specializes in great customer service and dealing with complex cases. Eli is available to answer any mortgage questions, without any obligation. Eli can be reached by phone or text at 732.278.6526 or via email egarfinkel_fundingrmc.com or in the office at 732.364.7373 ext 22.

By Eli Garfinkel