Mortgage FAQs

What is a fixed rate vs. adjustable rate loan?

With a fixed rate mortgage, the interest rate is set when you take out the loan and will not change. This can be beneficial if you know that you will be able to pay a certain monthly fee and aren't willing to risk the rates going up or down.

With an adjustable rate mortgage, also called an ARM, the interest rate may rise and fall. Many ARMs will start with a lower interest rate than fixed rate mortgages and stay the same for months or years. When the introductory period is over, your interest rate will change and the amount of your payment will more than likely increase.

Part of the interest rate you pay is tied into an index, which is a broader measure of interest rates. Your payment will go up when this index moves higher. When interest rates drop, it's possible that your payment may go down, but it's not guaranteed. Various ARMs have limits on the amount of each adjustment, and set a maximum, or cap, on how high your interest rate can go throughout the lifetime of your loan. Some ARMs limit how low your interest rate can go as well.

What are the benefits of getting an FHA loan?

The benefits to getting an FHA loan are plentiful. There are very few credit restrictions with the FHA loan and the agency will allows a 3.5 percent down payment to come as a gift from a family member, employer, charitable organization or government homebuyer program. You can even get an FHA loan if you've recently experienced a hit like a short sale, foreclosure or bankruptcy. This is via the FHA Back to Work program. There are some times where a waiting period is required, but not always. Depending on your personal circumstances, you may be eligible to purchase another home using FHA financing quickly and get your feet back under you. Also, since 2011, the rates for FHA mortgages have been lower than comparable conventional products.

How do I qualify for a refinance?

Everyone's situation is unique and there are no truly hard and fast rules when it comes to qualifying for a refinance. Keep in mind that credit scores are not always the end all of getting a refinance pushed through - there are plenty of times where having a great credit score can help, but if your debt-to-income ratio is too high, the loan still won't be approved. Before deciding to apply for a refinance, consider whether it is worth it to refi your home. If you're planning to move within a year, it's usually not a good option since these costs can take time to resolve. Also, if your savings per month don't exceed your closing costs, it doesn't make sense to pursue a refinance. While there are sometimes great savings in refinancing your loan, it can also be perilous to do so without being advised of all of your options.

What should I do if I have a bankruptcy on my credit report?

The type of bankruptcy that you go through will play a role in how soon you can be eligible to purchase a home, as will the loan product. Different mortgage programs will have different seasoning periods following a bankruptcy or foreclosure and there are lenders with their own in-house requirements on top of that.

With a Chapter 7 bankruptcy, the seasoning clock begins ticking when the action is discharged. Typically, it takes four years to qualify for a conventional loans and two years for either FHA or VA financing through the FHA's Back to Work program. This program offers qualified borrowers the possibility of even swifter movement after both bankruptcy and foreclosure.

Chapter 13 bankruptcies can be different and you may be able to land a conventional loan just two years after a Chapter 13 discharge. FHA and VA loans are even more lenient and borrowers are sometimes eligible for these government-backed loans just a year after filing a Chapter 13 bankruptcy. Typically, you will need to show at least 12 consecutive months of on-time payments and the court's permission to take on new debt.