10 Frequently Asked Mortgage Questions Related to Money

by Carson BuckFebruary 18, 2019

Get the Answers You Need, So You Can Be a More Prepared Buyer

Buying a first home is one of life’s most stressful moments, but it can also be one of its most rewarding. The difference between the two often depends on how much the buyer knows about the process. And when it comes to this type of transaction, most questions tend to be mortgage and money-related.

If you’re a first-time home buyer looking for answers to your (potentially many) mortgage questions, then here are the ten most frequently asked money-related questions that people have when buying a home, along with the answers.

mortgage money questions

#1: How Much Down Payment Will I Need?

This is the number one question asked to lenders, but the answer is not necessarily the same for everyone. The standard down payment on a home is 20% of the asking price. This amount is needed if you want to avoid paying private mortgage insurance (PMI).

However, a mortgage can still be obtained for less than 20% down, but the borrower will be required to pay a monthly PMI (Private Mortgage Insurance) payment included in their mortgage payment. Other programs are also available that allow you to buy a home with no money down, such as with a VA loan.

#2: How Much Are Closing Costs?

Closing costs include all the fees and charges you will need to pay before you can take ownership of the house. The fees you’ll have to pay typically include origination fees, title insurance fees, prepaid escrows, and more. You pay closing costs at the closing of your home and the amount can vary, but it is usually between 2% and 3% of the home’s selling price.

#3: What Are Points?

Points are money that gets paid upfront in exchange for a lower interest rate. One point is equal to 1% of the loan amount, so on a $300,000 mortgage, one point will cost $3,000.

#4: Should I Pay Points?

Paying points can be beneficial in most situations because they are tax-deductible. But you need to punch the numbers to make sure it is worth it. For instance, you will only want to pay points if the interest savings you’ll get over the life of the loan is going to be greater than the points paid.

mortgage money questions

#5: Should I Get a 15- or 30-Year Mortgage?

This question can only be answered by your own budget and expectations. For instance, if you want a lower monthly payment, then you will want to stretch the loan out over 30 years. But if you want to own your home quicker and you’re not worried about a higher monthly payment, then 15 years will be the better way to go.

Another consideration for choosing a 15-year mortgage is that the interest tends to be lower on a shorter loan, so you could wind up saving a lot of money with this type of mortgage.

#6: What Is an Escrow Account?

When you’re in the process of buying a home, the lender will require you to deposit money into an escrow account. This account is used to guarantee the lender that the ongoing expenses of owning the property, like the insurance and taxes, will be paid for. A lump sum is deposited into the escrow account at closing, and a certain amount will be automatically deposited into it every time you make your monthly mortgage payment.

#7: How Is My Mortgage Payment Determined?

This answer is different for every buyer, but it is ultimately determined by the lender, based on four factors. These include the loan’s principal, the interest rate, taxes, and insurance premiums.

The amount payed to insurance will depend on whether you are paying PMI or not. If not, then just the homeowner’s insurance will be included in the mortgage amount. As for taxes, each monthly mortgage payment will include one-twelfth of your annual property tax amount.

#8: Do Monthly Mortgage Payment Amounts Change?

Payments for an adjustable-rate mortgage regularly change because the interest rate on this type of loan changes when the national rate changes. Fixed-rate loans can also experience fluctuating payment amounts, such as when the amount of money in your escrow account isn’t enough to cover your insurance and tax payments. In this case, the lender will raise your monthly payment to make up the difference.

#9: Are There Down Payment Assistance Programs?

If you’re a first-time home buyer and you’re having difficulty saving for your down payment, then there are programs available that may be able to help. It always pays to ask for private assistance first, such as from parents or loved ones, but if this isn’t a possibility, then you can try one of the 2,000+ programs nationwide. You will need to meet their income and credit requirements in order to qualify.

mortgage money questions

#10: What Is a Prepayment Penalty?

A prepayment penalty is a policy that allows a lender to collect an additional six months of “unearned interest” if you pay the loan off early. This applies even if you pay it off through a refinance or via sale of the property. Prepayment penalties aren’t allowed any more in many states, but it is important to ask your lender in case your state still permits them.

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About The Author
Carson Buck
Carson is a real estate agent based out of Phoenix, Arizona. Carson loves data and market research, and how readily available it is in today's world. He is passionate about interpreting these insights to help his clients find and buy their perfect home. Carson got into the real estate industry because he loves the feeling of handing over the keys to a new home to happy clients. In his free time, he works on his backyard bonsai garden and spends time with his wife, Julia.

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