Purchasing your first home is a big step – one that requires significant time, money and resources. And the key to getting to the finish line with as little headaches as possible? Understanding what the home buying journey looks like. For most buyers, getting a mortgage is a necessary part of the process – but one that can come with a handful of questions. From figuring out what mortgage is right for you to your payment schedule and beyond, it’s easy to get overwhelmed.
Your realtor can be a valuable resource, connecting you with a trusted lender and offering guidance on what you can afford, it’s important to have a general understanding of the financing process to make the most informed decisions and avoid costly mistakes.
As a part of our Common Questions When Buying a Home series, we’ve put together some of the most asked questions about mortgages—including different types of mortgages, paying your mortgage off early, and what to do if you can’t make a payment.
What’s the difference between pre-qualification and pre-approval?
Think of pre-qualification as a rough estimate of what you might be able to borrow. It’s usually based on information you provide but can also involve a ‘soft’ credit check, which doesn’t affect your credit score. A pre-qualification is a great way to get a general idea of what you can and cannot afford, helping you determine a loose budget before you begin your home search.
However, a pre-qualification isn’t nearly as reliable as a pre-approval, which requires the lender to verify all aspects of your finances—like your income, debt, and any assets. They will also need to do a ‘hard’ credit check, which can temporarily lower your credit score. If you’re serious about buying, opt for pre-approval. These are more valuable to sellers and real estate agents and can give you an edge over other buyers – especially in a competitive market.
What type of mortgage is best?
The type of mortgage you choose matters more than you think. It doesn’t just impact on your monthly payments – but plays a big role in shaping your long-term financial health. There’s several types of mortgages out there, but the best one for you depends on your unique financial situation. Here’s what to consider:
- How steady your income is
- Your credit score
- How long you plan to stay in the home
- Your long-term financial goals
Once you’ve thought through these considerations, check out our blog for a deeper look at adjustable-rate and fixed-rate mortgages – two of the most common mortgage options.
Can I pay off my mortgage ahead of schedule?
Yes—but only if your budget and lender allow for it. Most lenders do permit early payoff without penalties, meaning you can make additional payments towards your mortgage or increase the amount you pay on your payments each month. This might be a smart move if…
- You want to save on interest – By making larger or extra payments, you’ll shorten the time it takes to pay off your mortgage, which can drastically reduce how much you pay in interest.
- You’re planning to sell soon – The more you pay off your mortgage now, the more equity you build in your home, meaning you’ll pocket more when it’s time to sell.
- You want less debt – Reducing your debt-to-income ratio doesn’t just offer peace of mind, it can make it easier to secure other loans.
Before making any decisions, we recommend checking with a financial advisor to ensure you can still meet other financial obligations and investment goals with the additional payments.
What happens if I can’t make a mortgage payment?
Many lenders offer hardship programs or can make modifications to your mortgage to help you avoid foreclosure and keep you in your home. This is something worth asking about when you’re shopping for a mortgage— as some lenders are more flexible than others when life throws you a curveball.
Here are a few common options your lender might offer:
- Mortgage Forbearance: Mortgage forbearance allows you to temporarily pause or reduce your mortgage payments, usually for up to 12 months, depending on what you work out with your lender. It’s often a solution during times of financial hardship—like a job loss, illness, or other unexpected life events.
Keep in mind: forbearance doesn’t reduce the total amount you owe. You will still need to pay the difference back, whether through a lump-sum or a repayment plan. - Mortgage Modification: Mortgage lenders can also permanently change the terms of a loan to make payments more affordable – usually after a major life event like job loss, the death of a spouse, or a natural disaster. This could mean lowering your interest rate, extending the length of the loan, or switching from a variable to a fixed rate. Unlike refinancing, which replaces your loan with a new one, a modification adjusts the one you already have.
When should I refinance my mortgage?
Refinancing can be a smart move, especially when market conditions are favorable, your financial situation has improved, or the timing just makes sense.
Here are a few situations where you may want to consider refinancing:
- Interest rates have dropped – If interest rates are significantly lower than when you bought your home, refinancing can lead to big savings over time. A general rule of thumb is to consider refinancing if rates have dropped by at least 1–2%.
- Your credit score has gone up – If your credit score has notably improved since you initially took out your mortgage, chances are you will now qualify for a better rate and loan terms.
- You need to tap into home equity – A cash-out refinance can help you convert some of your equity into cash, which can go towards home improvements, major expenses, or be used to pay off debts.
- You want a lower monthly payment – Refinancing can help you adjust the length of your mortgage, spreading your payments out over more time. This may however mean paying more in interest.
- You have an adjustable-rate mortgage and want to switch to a fixed-rate mortgage – this means you will be locked in at the current interest rate and protected from future rate increases for the duration of your mortgage.
Keep in mind that if you choose to refinance, you’ll also have to pay closing costs and fees. That said, if you’re refinancing to get a lower interest rate, it will likely be worthwhile in the long run, assuming your savings on interest adds up to be less than those costs.
At Ohio Real Title, we’re here to help make your closing as seamless and stress-free as possible, prioritizing clear, timely communication, top-notch customer service, and smart technology to keep everything on track from start to finish.