Getting a mortgage can be an equally terrifying and interesting affair. It can always be something worth being nervous for, especially if you’re a first timer. Getting a mortgage has its benefits, but you must always get accurate information first in order to be able to check your budget properly. I should know as there are lots of mortgage companies near me.
Here are some things you should ask your mortgage lender to ensure you’re on the right track with your mortgage. Remember, these questions are important as a mortgage can directly affect your financial future.
Take Note of the Basics
Remember, though, to always make sure that the mortgage lender you chose is someone that is reliable and reputable. Once you’ve explained your financial situation and gave them time to assess your credit check, they will most likely bring out various options you may be able to borrow.
- If you think they’re reliable, always ask for the type of loan you think is best for your financial situation. If not the best, just ask the advantages and disadvantages of taking certain kinds of mortgage loans. This is because there are certain loans that are best for your certain condition, and they all have different requirements, rates, and costs. Here are some questions you should ask for clarification:
Monthly Mortgage Payment, Interest Rate
You first have to clarify the interest rate, which is more or less based on the loan presented and your credit rating. The three aforementioned criteria will most likely determine the monthly payment you will have. Make sure the loan you choose will be something you’re able to commit to until the end, because penalties for late payments can get harsh.
- Always put the monthly mortgage payment and interest rate in a “simulation” of sorts with your other expenses. You can’t possibly forget about other monthly payments, or short-term and long-term savings, so check how these two will impact your overall financial plan.
- When calculating for your overall plan, make sure you include the taxes and insurance you will have to pay for.
- If you’re not sure with the interest rate so far, it’s best to look towards cleaning up your credit first, just so you can qualify for the lower interest rates.
Fixed Rate, ARM, Other Fees
The next question to ask is to determine whether or not the mortgage in question is a fixed-rate, or an adjustable-rate. Here’s the primary difference:
Fixed-rate loans tend to have the same rate of payment throughout the loan term, which usually lasts between one to three decades.
- Adjustable-rate mortgages, also called ARMs, have varying interest rates that regularly change.
- Some potential borrowers consider a hybrid option: an ARM that starts as a fixed-rate period, given these tend to have lower interest costs than their fixed-rate counterparts.
- Of course, if you choose an ARM, do try to check just how much the rates will change and how often this will happen. There’s a usual limit to how these interest rates can just increase, so be sure to tally these with your calculations as well.
Meanwhile, you should also ask about other fees you have to pay for. These are usually “points” that you have to pay for when closing the deal. Lenders can decrease interest with every “point” you pay, so ask if you have the option to pay no points for an increased interest, should this be something more practical for you.
These are normally called discount or origination points, and they differ depending on the types of loans they are used. In essence:
- Discount points are prepaid interest and can be tax-deductible. They can reduce the interest rate.
- Origination points, meanwhile, are from the lender and they cover the expenses for “originating” the loan in question.
You also should ask about paying mortgage insurance, and how much this can cost. This can be pretty expensive, so you have to be prepared for these extra payments. There are also other potential extra payments as well, including recording fees, taxes, escrow, pest inspection, credit report, lender’s title, and appraisal. All of them can be included in the mortgage, and sometimes some of them are. Be prepared to add these into your calculation as well, and if there’s any way to lessen the costs of these requirements.
Prepayment, Minimum Down Payment
Now is the best time to ask about just how much the down payment for the loan is. Some require 20-percent down payment, although if you do qualify for some loans like the FHA, you may have lower down payments. These tend to cost more, however.
- If you do have plans for other payment strategies like paying bi-monthly, or making extra payments, try to ask just how flexible the payment scheme is. For instance, can you make prepayments? Sometimes these have fees, so you better ask if this is allowed.
Guidelines, Locking In
Lastly, ask for the underwriting guidelines as they differ from one loan to the next. Sometimes, loans need proof of income, and even monetary reserves of up to half a year for payments. Do ask if there are things like these, and how prepared you are for them.
- This is important because some mortgages require different qualifications for prospective buyers. The normal requirements include income levels, debt levels, credit history, and even employment status. However, if you’re for instance buying for the first time or a military veteran, you may be able to grant yourself access to special programs. You have to be aware of these options as well, as these can reduce costs for you.
Meanwhile, also ask if you’re able to “lock in” with your given rates, and how long before this changes. If the options presented don’t seem reasonable, always ask if there are some mortgage options that have lower rates.
- This is because there are varying costs and rates of mortgages on given time periods. Sometimes, these rates only stay for a certain amount of time before they radically change, so when you talk about these with your lender, ask for how long these rates will stay. The amount of time they will tell you will be the time you can spend calculating costs so, if you decide to accept these rates, finally “lock” in the mortgage.
Always remember that it’s extremely important to ensure your mortgage lender is aware of your situation before taking out a loan. However, it’s also just as necessary to ensure that you’re aware of what you’re getting into. Never be afraid to ask questions to mortgage lenders about your situation-to-be. Feel free to look back at this post as well to ensure you’ve got all that you need before asking.
What do you think are other things to ask your mortgage lender before taking out a new loan? Do you have other tips?