If you're planning to buy a home, you're most likely going to need financing or a mortgage. Because your mortgage will affect your finances for many years to come, it's important to make sure you understand your options and choose a mortgage program that will best fit your needs. Here are 5 common questions about home loans to help you in this process.


Q1. What documentation do I need to get a mortgage?

The documentation you need to apply for and qualify for a mortgage will depend on your individual case and the type of mortgage you choose. Still, most documentation requirements are similar. The initial documentation you need to apply for a mortgage includes your Social Security card, your driver's license, one month's pay stubs, W-2s for the last two years, your most recent tax return, bank statements, and asset statements.


Once you make an offer on a home, you will also need the copy of your earnest money check and your fully executed purchase contract to continue the underwriting process. You may also need to provide verification of employment and a gift letter if you are using gifted money for your down payment.


Q2. What type of mortgage should I choose?

There is no easy answer to this question as it will depend on your current and future financial situation and your preferences. Here's an overview of the most popular loan programs:

Q3. What is the difference between a fixed and adjustable rate mortgage?

  • FHA mortgage. This type of mortgage is popular with buyers who have little money down and/or less-than-perfect credit. An FHA mortgage requires a down payment of just 3.5%.
  • VA mortgage. A VA home loan is likely the best option if you qualify as a U.S. veteran or active duty military personnel with no down payment necessary and low fees.
  • Conventional mortgage. A conventional home loan is a good option if you have a 20% or more down payment to avoid private mortgage insurance (PMI) because a conventional loan will likely offer the lowest rate.


One of the most important decisions you will need to make before applying for a loan is whether you want a fixed rate or adjustable rate mortgage (ARM). A fixed rate mortgage is the most popular option as it gives you predictability with mortgage payments that will never change. With an ARM, you will most likely get a lower interest rate, at least initially, but there is risk because your interest rate can go up or down over time with market conditions. Despite the risk, an ARM may be a good option if you are planning to sell the house before the rate resets or you expect your financial situation to improve.


Q4. What are closing costs?

Closing costs are all of the expenses above the price of the home in your transaction and they include many fees like loan origination fees, title insurance, discount points, appraisal fees, credit report fees, and deed recording fees. Buyers usually pay 2-5% of the purchase price of the home in closing fees or about $3,700 on average.


Q5. What are mortgage points?

Many buyers pay for mortgage points at closing, but there is a great deal of confusion as to what mortgage points actually are. There are two types of mortgage points: origination points and discount points. One point is always equal to 1% of the total mortgage amount. Buying points has a big advantage as one point reduces the interest rate on your loan by 0.25%. The longer you keep the mortgage, the more this will save you in interest charges.

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