Important Money Questions About Your Mortgage
Anytime you are dealing with complex financial decisions or documents like getting a mortgage, it pays to ask questions.
A couple of obvious questions may come to mind anytime you think “mortgage”.
First, what is the interest rate on this mortgage?
We all know we want the lowest possible interest rate. Rates change sometimes daily so it pays to ask about the rate and get a commitment to the rate you are quoted for a period of time.
Next, what will the payment be on this mortgage?
When you sign the papers for your mortgage you are committing to a payment for between fifteen and thirty years! It makes sense that you need to know how much that payment will be before agreeing to the mortgage.
There are several factors that can affect your payment.
Here are some additional important questions about the mortgage rates and fees that could affect your payment. Be sure to ask these questions before you decide which mortgage to choose.
Is the mortgage fixed rate or an ARM?
Fixed-rate loans keep the same rate for the life of the loan, which can range between 10 and 30 years. Adjustable-rate mortgages, or ARMs, have interest rates that change after an initial period at regular intervals. If you don’t plan to stay in your home long-term, a hybrid ARM with an initial fixed-rate period may be a better choice, since this type of loan tends to have lower interest rates than fixed-rate mortgages.
If you do consider an ARM, make sure you ask (and understand!) when the rate will change and by how much. Ask how often the rate will change after the initial interest rate change, the index that it’s tied to, and the loan’s margin. There are usually caps to how much the interest rate can increase during one period and over the life of the loan, so recalculate the monthly payment to make sure you can afford that higher rate.
What fees do I have to pay?
One-time fees, typically called “points,” are due at closing. For every point you pay, your lender will decrease your interest rate by 1%. You can also inquire about whether you might have the option of paying zero closing fees in exchange for a higher interest rate.
Does the loan have any prepayment penalties?
If you’re saving up to make some extra mortgage payments to pay off your mortgage principal early, you may have to pay a fee. Don’t forget to ask this important question.
When can I lock in the interest rate and points, and how much does this cost?
Your lender may be able to lock in your interest rate for a time, and for a fee. If rates go up, you’ll still be able to benefit from a lower rate on your mortgage.
What is the minimum down payment required for this loan?
Different loan products have different down payment requirements. Most mortgages require a 20% down payment, but if you qualify for an FHA loan, for example, your down payment could be as low as 3.5%. In general, loans with lower down payments cost more. – Trulia
Questions About Qualifying and Documents
Besides the many financial questions, there are other important questions tyou need to ask to be prepared and successful in closing on your mortgage.
Here are a few of those important mortgage questions to help smooth the way to buying your home.
What are the qualifying guidelines for this loan?
Ask about requirements relating to your income, employment, assets, liabilities and credit history. Qualifications for first-time homebuyer programs, Veterans Affairs loans and other government-sponsored mortgages are typically less stringent.
What documents will I have to provide?
Lenders require proof of income and assets, including bank statements, tax returns, W-2 statements and recent pay stubs. More may be needed to show your down payment and ability to pay closing costs.
How long will it take to process my loan application?
Depending on how busy the lender is, it can take as little as 2 weeks or as long as 60 days. Be patient and forward any requested documents quickly to speed up the process.
What might delay approval of my loan?
A job change, an increase or decrease in salary, a new debt, a change in your credit history or change in marital status could delay your loan approval. The best way to avoid that is to put your financial life in a holding pattern until you reach the closing table. – Bank Rate
Do you have a list of questions to ask when applying for a mortgage?