April 2nd, 2018 6:56 AM by Jackie A. Graves
Buying a home is one of the biggest decisions you can make. It involves a big amount of money. Therefore, before you make the final decision on buying one, it is important that you know and understand your financing options. If applying for a mortgage loan an option you consider, you will need to spend time working with them to ensure your finances are in shape for a home purchase.
Before committing to a mortgage lender, here are some of the most important questions you need to ask before you apply for a loan.
What is the interest rate?
The mortgage broker will give you an interest rate together with the loan term and the mortgage balance. These things will comprise your monthly payment. You need to ask for the breakdown and find out the real interest rate because it directly impacts the amount of your monthly payment. The lower the interest rate, the lower your monthly fees.
Which type of loan is the best?
Trustworthy lenders will not just lay down all the loan options before you. They will take time to know and understand what your needs are, and gather as much information as they can before they recommended the best type of loan. When they present various loan types, take advantage of the opportunity to ask how each type differs from each other, and the advantages and disadvantages of each type.
What are the discount points and origination fees?
Most lenders charge discount points or origination fees, or both. Each point is equivalent to one percent of the total loan amount. It means that if you take out a $100,000 mortgage, the discount point you will have to pay is worth $1,000. Because discount points reduce the interest rate, the more points you pay, the lower the interest rate.
What are the closing costs?
As a borrower, you will be required to pay fees for the services provided by your mortgage lender. You can ask for these costs because lenders are required to give you an estimate of the closing costs in writing within three days after you submitted your loan application.
Does the loan have any prepayment penalties?
Some borrowers choose to make advance or early payments on their mortgage if their budget can accommodate it. If you also wish to pay off your mortgage early, you need to ask at the beginning of the process if there will be any prepayment penalties.
When can the interest rate be locked and how much will it cost?
Interest rates are still subject to change and may fluctuate between the time you apply for the loan and your closing. To avoid getting caught in a high-interest rate, you have the option to lock the rate for a specific period of time. However, you also need to find out how much it will cost if any fees apply.
What is the minimum down payment required for the loan?
Different types of loans require different amounts for down payments. While most mortgages require at least 20 percent for the down payment, it is important to note that when you pay higher for the down payment, you will get a lower interest rate and better loan terms. However, if you can’t make a 20 percent down payment, your monthly fees will increase and you may be required to get mortgage insurance.
What documents are required?
Lenders have their list of requirements when it comes to the documents you have to submit. But more often than not, they will require you to submit proof of assets, tax returns, bank statements and recent pay stubs. However, depending on the lender, they may require more paperwork.
How long does the approval process take?
If you are excited to get your mortgage processed, ask lenders for a specific time frame on their approval process. While most take two weeks to two months, make sure to submit your documents on time or as early as possible to speed up the process.
If you are ready to buy a home, mortgage loans are an excellent option. And to help you with your entire home purchase journey, use these important questions to mortgage lenders when you apply for a loan.
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