For first-time buyers, the mortgage process raises a lot of questions. In this second article, we tackle more of the common inquiries we receive from real-life customers. Click here to read the first article.
– Question from Andrew and Sara, Brighton, MI
The exact dollar amount you should save for a down payment depends on the price of the house you are buying. Most down payment requirements are expressed in percentages. A 5% down payment on a $500,000 house is much greater in raw dollars ($25,000) than 5% on a $200,000 house ($10,000).
In terms of the minimum requirements for different loan types:
“The more you put down, the less you must finance, which means the less you will pay in interest over the life of the loan.“
– Rick Fernandez, Branch Manager,
Mortgage 1 Brighton
– Question from Spencer and Sydney, Ann Arbor, MI
A mortgage payment consists of two components:
The principal portion goes toward paying off the original amount of money you borrowed. The interest portion covers the cost of borrowing.
Your mortgage payment will be the same amount each month. Early in the life of the loan, more money goes toward interest than principal. Over time, the principal portion will match and then exceed the interest amount. For example, on a 30-year $200,000 mortgage at 4%, your monthly payment is $955. For the first payment, $288 goes toward principal and $667 goes toward interest. It isn’t until the 153rd payment that the interest and principal are roughly equal. Thereafter, more of the monthly payment goes toward principal until, on the very last payment of the schedule, $952 goes to principal and $3 to interest.
Your lender will provide you with an amortization schedule that shows a month-by-month P&I (principal and interest) breakdown for your loan.
For convenience, many people include property tax and insurance payments in their monthly mortgage payment. Technically, these aren’t part of the loan, but the loan servicer can put this money into an escrow account, where it is saved until the taxes and insurance are due. They then make the payments for you. You are not required to include escrow in your monthly payments. If you choose not to, you will just pay your property taxes and insurance annually on your own.
“When you make extra payments, that money goes directly to the principal and moves you faster along in your payment schedule“
– Anne Nauts, Branch Manager,
Mortgage 1 Ann Arbor
-Question from Gregory and Allison, Monroe, MI
Along with conventional loans, the following loans offer distinct advantages for first-time buyers.
“Mortgage 1 has been Michigan’s leading lender for first-time buyers for 7 straight years!”
– Marc Fuller, Branch Manager,
Mortgage 1 Monroe
–Question from Vince and Lanna, Sterling Heights, MI
Yes! Every Mortgage 1 loan officer has a Mortgage in a SNAP digital application that allows you to complete the application process online. You can get approved in as little as 15 minutes. The app lets you submit your information, communicate with your loan officer, and track the status of your loan. In these times of COVID and social distancing, Mortgage in a SNAP is the perfect solution. To get started or to locate a Mortgage 1 loan officer near you, visit our Find a Mortgage Loan Officer page. Once you select a loan officer, you will be directed to their SNAP app.
“Mortgage in a SNAP makes the process fast and easy. You can apply anytime, from anywhere.”
– Lisa Whitman, Branch Manager,
Mortgage 1 Sterling Heights
–Question from Brandon and Sarah, Birmingham, MI
Private Mortgage Insurance (PMI) is an insurance policy that protects a mortgage lender or title holder if a borrower defaults on payments, passes away, or is otherwise unable to meet the contractual obligations of the mortgage. If you pay 20% or more as a down payment on a conventional loan, you do not need PMI. Once you start paying PMI, it goes away in two ways: (1) once your mortgage balance reaches 78% of the original purchase price; (2) at the halfway point of your amortization schedule. For example, if you have a 30-year loan, the midpoint would be 15 years. At the point, the lender must cancel the PMI then, even if your mortgage balance hasn’t yet reached 78% of the home’s original value. PMI is typically between 0.5% to 1% of the entire loan amount.
“You don’t need PMI if you put down 20% or more on a conventional loan.”
– Michael Skelton, Branch Manager,
First National Mortgage Bankers
–Question from Julio and Nicole, Cape Coral, FL
Closing is when you sign the many documents that finalize your purchase. The closing is usually held at a title company’s office. The seller will be there, as will your agent. In terms of what you should bring:
“Before the closing date, you will get a list from your loan officer of everything you need to bring.”
– Tracy VanLandschoot, Branch Manager,
Mortgage One Cape Coral
– Question from Shawn and Brianna, Sterling Heights, MI
When determining the size of your loan, lenders use a formula called loan-to-value (LTV). When your mortgage contract is initially written, LTV is calculated using the purchase price. But the final contract is based upon the official appraised value of the house. What happens if the appraised value comes in lower? You have several options.
“If the appraisal comes back low, talk to your Realtor. Chances are they’ve been through this before and can guide you.”
– Mike DeGrande, Branch Manager,
Mortgage 1 Sterling Heights
– Question from Kevin and Tara, Shelby Township, MI
Ah, if only we had a crystal ball. We can’t predict what mortgage rates will be in a year, but we can say that rates today are near historic lows. The Federal Reserve announced recently that they will be holding short-term interest rates steady for the foreseeable future. While mortgage rates aren’t tied specifically to short-term interest rates, the two generally track closely together. So, while we can’t predict what rates will be in a year, we can say with certainty that today’s rates are at historic lows.
“Mortgage rates are as low as I have seen them in my lifetime.”
– Nick DiLegge, Branch Manager,
Mortgage 1 Sterling Heights
If you have mortgage questions, let us know. We specialize in helping first-time buyers understand the mortgage process. Call us at 1-866-532-0550 or locate a Mortgage 1 loan officer near you to get the process started using our digital mortgage app. It’s fast and easy!