Buying a home takes time. Before you get to the step of choosing a property, you’ll most likely need to learn about mortgage loans and lenders.
Your mortgage loan is going to depend on who you talk to and where you go. To get the best possible loan you need to know the facts. Before you begin your search for a new home, it is important to know the right questions to ask to ensure you get the best possible loan with fair terms and conditions. After all, your mortgage is a long term investment and not understanding all of the financial details can cause serious problems down the road.
We have provided a list of questions below so you know exactly what to ask when applying for a home loan.
What is the interest rate?
The APR (Annual Percentage Rate) for your mortgage loan includes the mortgage interest rate, points, and other fees correlated with your mortgage. Note, even the tiniest percent difference between different rates can cost you thousands. Understanding your interest rate is step one to finding the right loan.
Can you lock in your interest rate?
Find out if your interest rate can be locked in. Interest rates fluctuate. From the time you apply to the day you close your rates can change rapidly. Ask whether you can lock your interest rate in and if there are fees associated with doing such. Protecting your finances for the future should be one of your primary concerns.
Fixed-Rate or Adjustable Rate mortgage?
A fixed-rate mortgage has a set interest rate throughout the life of the loan, usually 15 or 30 years. An adjustable-rate mortgage (ARM), starts off homebuyers with a lower initial rate that will rise in later years. This is important to understand, as it will affect your monthly payment.
How much is the minimum down payment?
Larger down payment = lower interest rate and better terms. Ask about the down payment and find out if you are going to have to utilize private mortgage insurance (PMI). If you have to take out mortgage insurance your total monthly payments may be higher.
What are and how much are the closing costs?
What additional fees are you going to be on the hook for? When you take out a mortgage you typically have to pay fees to the lender, title company and pay for underwriting and document preparation fees. Ask if you can pay a slightly higher interest rate to avoid these additional fees.
Is there a prepayment penalty?
Paying off your mortgage early is a great way to save a ton of interest fees. Ask about the terms and conditions of your loan and find out if there are any prepayment penalties. Paying off some loans ahead of schedule can come with financial penalties.
NOTE: Some penalties may be enforced if you refinance or reduce the principal balance by more than a certain percentage.
How long is the approval process?
Your time is precious. Some loans take days to get approved, while others can take weeks or even months. Find out how long the approval process will be so you know exactly when you will get an answer concerning your application.
What do I need to qualify?
Mortgage lenders are picky when handing out loans. They will want to look at your income and assets, including tax returns and bank statements. Many lenders will be reviewing your debt and comparing it to your gross monthly income. If your debt is too high, your loan application may be rejected.
Depending on the underwriting of your loan, there may also be credit history requirements.
Inquire about what information is exactly needed relating to your income, employment, assets, and credit history.
What documents will I have to provide?
You will need to provide proof of income and assets. This includes bank statements, tax returns, and pay stubs. If you own a business you will need 1099 forms. Most lenders will require a list of your debts as well.
Additional Mortgage Loan Q & A
What might delay approval of my loan?
Discrepancies in your finances, not handing over the required documents, career change, an increase or decrease in salary, new debt, and even a change in your credit history could all delay your loan approval. The best way to avoid a delay is to “lay low” while you wait for approval. Try to avoid making any drastic financial changes when applying for a mortgage loan and always provide all documentation requested.
Do I Have to Escrow Taxes and Insurance?
If you have a mortgage escrow account you must pay your lender a certain amount each month to cover various fees. These include property taxes and homeowners insurance. You pay extra each month so the lender can pay these on your behalf as the bills come due.
Usually, if you borrow more than 80% of the property’s value your mortgage lender will require an escrow account. But, in many cases, if you make a down payment of 20% or more your lender may waive the escrow requirements if you request it. Depending on your lender you may also have the option of canceling the escrow account down the line.[/fusion_text]