❓ Mortgage & Home Loan FAQ

A mortgage is a loan used to purchase real estate, where the property itself serves as collateral. Here's how it works:

• You borrow money from a lender to buy a home
• The home is collateral - if you don't pay, the lender can foreclose
• You make monthly payments that include principal and interest
• Over time, you build equity as you pay down the principal
• After 15-30 years (depending on your term), you own the home outright

These are two different steps in the mortgage process:

Use the 28/36 rule as a guideline:

• 28% Rule: Housing costs should not exceed 28% of gross monthly income
• 36% Rule: Total debt payments should not exceed 36% of gross monthly income

Example: If you earn $6,000/month:

• Maximum housing payment: $1,680 (28%)
• Maximum total debt: $2,160 (36%)

Credit score requirements vary by loan type:

• Conventional Loans: 620+ (best rates at 740+)
• FHA Loans: 580+ for 3.5% down, 500-579 for 10% down
• VA Loans: No minimum (lenders typically want 620+)
• USDA Loans: 640+ recommended
• Jumbo Loans: 700+ typically required

A mortgage overpayment is any amount you pay above your required monthly payment that goes directly toward your loan's principal balance. This reduces the total amount you owe and the interest you'll pay over time.

Example: If your monthly payment is $1,800 and you pay $2,000, the extra $200 is an overpayment that reduces your principal.

The savings depend on your loan amount, interest rate, and extra payment amount. Here are real-world examples:

This is one of the most common financial questions. The answer depends on several factors:

• High mortgage rates (6%+): Extra payments often make more sense - guaranteed return equal to your rate
• Low mortgage rates (3-4%): Investing might yield better long-term returns
• Risk tolerance: Mortgage payments provide guaranteed savings; investments carry risk
• Tax considerations: Mortgage interest may be tax-deductible
• Liquidity needs: Money in investments is more accessible than home equity

Always specify that extra payments should go toward principal reduction:

• Online payments: Look for "additional principal" or "extra payment" option
• Check payments: Write "Apply to Principal" or "Principal Only" in memo line
• Phone payments: Specifically state you want it applied to principal
• Automatic payments: Set up recurring extra principal payments
• Verify: Check your next statement to confirm proper application

Even small amounts help! Here's the impact on a $300k, 30-year loan at 6.5%:

• $25/month extra: Saves $11,200 in interest, pays off 2.5 years early
• $50/month extra: Saves $21,800 in interest, pays off 4 years early
• $100/month extra: Saves $42,000 in interest, pays off 6.5 years early
• $200/month extra: Saves $78,000 in interest, pays off 10 years early
• $500/month extra: Saves $139,000 in interest, pays off 15+ years early

Each loan type has unique features and requirements:

• Conventional Loans: Not government-backed, 3-20% down, 620+ credit, PMI if <20% down, best rates for qualified borrowers
• FHA Loans: Government-insured, 3.5% down minimum, 580+ credit, mortgage insurance required for life (with 3.5% down), easier qualification
• VA Loans: For veterans/military, 0% down payment, no PMI, no minimum credit score (lenders typically want 620+), best loan benefit for eligible borrowers
• USDA Loans: For rural properties, 0% down, income limits apply, no PMI but has guarantee fee

PMI (Private Mortgage Insurance) protects the lender if you default on a conventional loan with less than 20% down payment.

Removal Options:

• Automatic: PMI automatically terminates at 78% LTV (22% equity)
• Request removal: When you reach 80% LTV (20% equity)
• Refinance: If home value increased and you now have 20%+ equity
• Pay down principal: Make extra payments to reach 80% LTV faster

A jumbo loan exceeds the conforming loan limits set by Fannie Mae and Freddie Mac.

2025 Conforming Limits:

• Most areas: $766,550
• High-cost areas: Up to $1,149,825
• Above these limits: You need a jumbo loan

Jumbo Loan Requirements:

• Higher credit scores (typically 700+)
• Larger down payments (10-20%)
• Lower debt-to-income ratios
• Higher interest rates (usually 0.25-0.5% above conforming rates)
• Larger cash reserves (6-12 months)

Aurebay's calculators use industry-standard mortgage formulas and provide highly accurate estimates for principal and interest calculations.

What's Included:

• ✅ Accurate principal and interest calculations
• ✅ Extra payment impact analysis
• ✅ Total interest savings projections
• ✅ Loan payoff timeline adjustments
• ✅ Detailed amortization schedules

What's NOT Included:

• ❌ Property taxes (varies by location)
• ❌ Homeowners insurance
• ❌ PMI/MIP (depends on down payment)
• ❌ HOA fees

No! Aurebay performs all calculations directly in your browser using JavaScript. We prioritize your privacy:

• ✅ No data collection - calculations happen on your device
• ✅ No account required - use anonymously
• ✅ No tracking of your loan details
• ✅ No transmission of financial information to our servers
• ✅ 100% client-side processing

Our calculator is optimized for fixed-rate mortgages where the interest rate remains constant throughout the loan term.

For ARMs:

• Use the current rate to estimate payments during the fixed period
• Results are accurate only for the current rate period
• Cannot predict future rate adjustments
• Best for comparing ARM initial period to fixed-rate options

Monthly extra payments are more effective because they reduce the principal balance sooner, saving more interest over time.

Example on $300K loan at 6.5%:

• $200/month extra: Saves ~$89,000 in interest
• $2,400 annual extra: Saves ~$82,000 in interest
• Difference: $7,000 more saved with monthly payments!

Recommended Financial Priority Order:

1. Emergency fund (3-6 months expenses) - Essential safety net
2. High-interest debt (credit cards, personal loans) - Pay off debt >8% interest first
3. Employer 401(k) match - Free money, get the full match
4. HSA contributions (if eligible) - Triple tax advantage
5. IRA contributions - Tax-advantaged retirement savings
6. Extra mortgage payments - After foundation is solid

Any extra payment helps! Even irregular payments can save thousands. Smart strategies:

• Tax refunds: Apply annual tax returns to principal
• Work bonuses: Put 50-100% toward mortgage
• Windfalls: Inheritance, gifts, or settlements
• Raises: Apply salary increases to mortgage
• Round up: If payment is $1,847, pay $1,900 or $2,000
• Bi-weekly strategy: Make half-payments every 2 weeks (=13 full payments/year)

Refinancing makes sense when you can achieve one of these goals:

• Lower interest rate: General rule - 0.75-1% reduction justifies refinancing
• Reduce monthly payment: Lower rate or extend term to free up cash flow
• Shorten loan term: Switch from 30-year to 15-year with similar payment
• Switch loan type: ARM to fixed, or FHA to conventional (remove PMI)
• Cash-out refinance: Access home equity for renovations or debt consolidation
• Remove PMI: If home value increased and you have 20%+ equity

A cash-out refinance replaces your existing mortgage with a larger loan and gives you the difference in cash.

How it works:

• Current mortgage balance: $200,000
• Home value: $400,000
• Available equity: $200,000
• New loan (80% LTV): $320,000
• Cash to you: $120,000 ($320K - $200K existing loan)

Common uses:

• Home improvements/renovations
• Debt consolidation (pay off high-interest credit cards)
• Investment property down payment
• Education expenses
• Emergency fund or major purchase

Technically, there's no mandatory waiting period to refinance. However, practical considerations apply:

• Conventional loans: No waiting period, can refinance immediately
• FHA loans: 210 days (7 months) for cash-out, 6 months for rate-and-term
• VA loans: 210 days for cash-out, 6 months for IRRRL (streamline)
• Prepayment penalty: Check your current loan terms (rare but possible)
• Practical minimum: 6 months for credit reporting and appraisal purposes

Yes! Self-employed borrowers can absolutely get mortgages, but documentation requirements are stricter.

Required Documentation:

• 2 years tax returns (personal and business)
• Profit & Loss statements (year-to-date)
• Business bank statements (2-3 months)
• CPA letter (sometimes required)
• 1099s or K-1s if applicable

Income Calculation:

• Lenders average your adjusted gross income from 2 years
• Can add back non-cash expenses (depreciation, depletion)
• Income should be stable or increasing
• Declining income may require explanation

Down payment requirements vary significantly by loan type:

Detailed Breakdown:

• VA Loans: 0% down for eligible veterans and military
• USDA Loans: 0% down for eligible rural properties
• FHA Loans: 3.5% down with 580+ credit score
• Conventional Loans: 3% down for first-time buyers, 5-20% for others
• Jumbo Loans: Typically 10-20% down required

Debt-to-Income ratio (DTI) compares your monthly debt payments to your gross monthly income. It's one of the most important qualification metrics.

How to Calculate:

• Add all monthly debt payments (mortgage, car, credit cards, student loans)
• Divide by gross monthly income
• Multiply by 100 for percentage

Example:

• Monthly debts: $2,500 (proposed mortgage $1,800 + car $400 + student loan $300)
• Gross monthly income: $7,000
• DTI: $2,500 / $7,000 = 35.7%

DTI Requirements:

• Conventional: Max 43-50% (lower is better for rates)
• FHA: Max 43-50% with compensating factors
• VA: No strict max, but 41% guideline
• Ideal: Under 36% for best approval odds and rates

The typical mortgage timeline is 30-45 days from application to closing, broken down as follows:

• Pre-approval: 1-3 days
• House hunting & offer acceptance: Variable (1 week to several months)
• Application to underwriting: 3-7 days
• Underwriting review: 7-21 days
• Appraisal: 7-14 days
• Clear to close: 3-5 days
• Closing: 1 day

Lenders require comprehensive documentation to verify your financial situation:

Income Verification:

• 2 years W-2s or 1099s
• 2 years tax returns (full returns with all schedules)
• Recent pay stubs (30-60 days)
• Proof of other income (rental, social security, pension, etc.)

Asset Verification:

• 2-3 months bank statements (all accounts)
• Investment account statements
• Retirement account statements (401k, IRA)
• Gift letter (if using gift funds for down payment)

Additional Documents:

• Government-issued photo ID (driver's license)
• Social Security card or number verification
• Proof of residence (utility bill)
• Divorce decree (if applicable)
• Bankruptcy discharge papers (if applicable)
• Purchase contract and earnest money receipt

Yes! Absolutely. Extra payments are completely flexible - one of their best features:

• ✅ Start anytime - no approval needed, just specify "principal"
• ✅ Stop anytime - no penalties or fees
• ✅ Adjust amounts - pay $50 one month, $500 the next
• ✅ Skip months - only make extra payments when budget allows
• ✅ Resume later - your previous extra payments continue saving interest

Missing mortgage payments has serious consequences. Here's the timeline:

Day 1-15:

• Grace period (most loans have 10-15 day grace period)
• No late fee if paid within grace period

Day 16-30:

• Late fee charged (typically 4-5% of payment)
• Lender may send payment reminder
• Not yet reported to credit bureaus

Day 30:

• Payment marked as 30 days late
• Reported to credit bureaus - significant credit score impact (-60 to -110 points)
• Lender begins more aggressive collection calls

Day 60-90:

• Additional credit damage
• May receive Notice of Default
• Lender may require full payment to avoid foreclosure

Day 120+:

• Foreclosure process may begin
• Severe credit damage (lasts 7 years)