Buying a house is most likely the biggest investment you will ever make, so before you dive head-first into the deal, you’ll want to have some questions answered about your mortgage. After all, you’ll be responsible for making good on your mortgage payments every month for years, so make sure you’re well advised about your home loan before you sign on the dotted line.
When speaking with your lender, ask the following questions before you commit yourself to a mortgage.
1. What Mortgage Type is Ideal For Me?
There are several different types of mortgages available, each of which is suitable for a specific type of borrower:
• Fixed-Rate Mortgages
• Adjustable-Rate Mortgages
• Federal Housing Authority (FHA) mortgages
• Veterans Affairs (VA) mortgages
• Jumbo mortgages
• Interest-only mortgages
• Reverse mortgages
These home loans differ in the loan amount offered, the amount of down payment required, interest rate, payment type, and length. The type of mortgage that’s best suited for you can be determined after you’ve filled out a mortgage application and your lender has had the chance to assess your employment status, income, assets, debt, down payment, and other factors.
2. What Rate Will I Pay, and Can I Lock it in?
The interest rate is a critical factor to consider, as it will have a huge impact on how much you have to pay each month in mortgage payments. Even a fraction of a percent can make a big difference. One of the first questions you need to ask your lender is what rate you’ll be assigned.
An initial quote will help you estimate what your payments will look like, as well as help you compare packages from different lenders when shopping around for a mortgage. Having said that, an initial quote isn’t guaranteed, unless you’re able to lock it in. If you believe that rates will rise shortly, locking in may be a good idea. Ask if your lender offers a mortgage rate lock, as well as any costs associated with extending the lock if it expires before your closing date.
3. What Are All the Costs Associated With the Mortgage?
The overall cost of your mortgage involves a lot more than just the loan amount that you have to pay back. At closing, you can expect to pay the following costs:
• Credit report fee
• Appraisal fee
• Title search fee
• Title insurance fee
• Homeowners insurance
Generally speaking, as a buyer, you’ll have to pay anywhere between about 2% to 5% of the purchase price of your home in closing costs. Knowing exactly how much you’ll responsible for paying is critical in order for you to budget accurately.
Luckily, you’ll be given a Loan Estimate (which has recently taken the place of the Good Faith Estimate) which details important information about the cost of your home loan, including the interest rate, monthly payments, taxes, insurance, how your rate may fluctuate in the future, prepayment penalties, and total closing costs for your mortgage. This three-page document must be provided to you by your lender within three business days of receiving your mortgage application.
You’ll also be given a Closing Disclosure (which has recently taken the place of the HUD-1 settlement document) which outlines the final details about your home loan and its costs. This five-page document will include important pieces of information about your loan, including all your closing costs.
Both of these forms are specifically worded using simple and clear terms to help make it easier for you to understand the terms of your home loan.
4. How Long Will it Take to Process My Loan?
Many borrowers can become anxious about the length of time needed to process their mortgage, as this can delay and even kill a real estate deal. It’s important to have a good idea about how long it will take before your application is approved when you’re trying to coordinate the sale of your current home with your new home purchase, or if you have a certain amount of time during escrow to get mortgage approval before the time period expires.
Ask your lender how long you can expect the mortgage approval process to take. The answer you receive will depend on a few things, such as how prompt you are at submitting the necessary documents and how busy the lender is. Of course, there are some things that you should not do during this time that could delay your approval, such as taking out a new loan or switching jobs. Only after your mortgage has been approved should you consider making any big moves that could drastically change your financial situation.
5. What Documents Do You Require?
In order to make sure the mortgage approval process goes smoothly without delay, be sure to promptly submit all documents that your lender requires. In general, you can expect to have to hand in the following paperwork:
• Employment letter
• Income statements
• Information about your credit history
• Information on debts and liabilities
• Proof of assets
• Personal I.D.
The sooner you provide these pieces of information, the sooner your lender can start working on your application.
6. What Are the Qualifications Needed For My Home Loan?
In order to be approved for a mortgage, you need to meet specific criteria, depending on the type of mortgage you’re applying for. All lenders require that borrowers meet certain requirements before approving a mortgage application. For instance, conventional loans require at least a 5% down payment, while FHA loans can only be used to purchase a primary home (as opposed to a vacation property). Your lender can fill you in on which types of mortgages you’re eligible for.
The Bottom Line
Having these questions answered will help provide you with a much clearer idea of what is required of you and what your financial commitments will be with your home loan. Considering the magnitude of a home purchase, it’s essential that you take the time to have all your pressing questions answered. Your mortgage lender will be happy to answer all your queries and discuss all of your options with you before closing on a deal.