8 Questions To Ask Your Lender About A Home Mortgage Loan
Entering the market for a new home is an exciting experience. However, if you are not well prepared, it can also be very stressful. One of the best ways to limit your stress is to be prepared when you meet with potential mortgage lenders. The following is a list of important questions you should ask your potential lenders before sealing your mortgage deal.
What Is The Interest Rate?
One of the ways to get the best deal on your mortgage loan is to get the lowest interest rate possible. Therefore, it is very important that you find out what the interest rate is on each mortgage loan you consider.
Generally, there are two factors that will determine the interest rate that you get offered on the loan. The first factor is the current market conditions when you apply for the loan. If market rates are high, you will likely have a relatively high interest rate. If market rates are low, you can expect to receive a relatively lower rate.
The second factor that will determine your interest rate is your credit profile. The stronger your credit score is, the lower your interest rate will be. If your credit score is less than stellar, you can expect to pay a higher interest rate.
Make sure that you ask your lender to justify the rate that you are offered. Remember that it never hurts to ask your lender for a lower interest rate. The worst he/she can say is no. It’s also a good idea to shop around for the best interest rate.
Is The Interest Rate Fixed Or Variable?
You also need to ask your lender whether the interest rate on the mortgage is fixed or variable. A fixed interest rate will stay the same over the life of the mortgage. For example, if your mortgage loan has a five percent fixed interest rate, you will pay five percent in interest each month until the loan is paid off or you refinance the loan.
A variable interest rate can and likely will change over the life of the mortgage. It can increase, decrease or do both. For example, your interest rate might start a five percent, increase to ten percent and then fall to 3 percent. Because of this fluctuation, variable rate mortgages are considered riskier investments than fixed rate mortgages. The downside risk is that your variable rate skyrockets and you have to pay larger than expected monthly mortgage payments. The upside potential is that you interest might fall, lowering your monthly mortgage payment.
You need to figure out which type of interest rate you prefer. If you are not comfortable taking on the risk of a variable rate mortgage, you should opt for a fixed rate loan. If you expect interest rates to fall and do mind the risk, you might choose the variable rate option. It is important to note that you can often refinance from a variable rate loan to a fixed rate loan if you are not happy with the variable rate.
Can You Lock In The Interest Rate?
A noted above, part of your interest rate is determined by what the current market rates are. As a result, the interest rate you initially agree upon when you start the mortgage process might change before the loan has closed. If market rates increase before the deal closes, you might end up paying a higher interest rate than you had originally planned for. To prevent this from occurring, many lenders will allow you to lock in the agreed upon interest rate until the deal closes. You will likely have to pay a fee to lock the rate in and generally the lock is only good for 30 to 60 days. Ask your lend if they have a lock in policy.
How Long Will The Loan Take To Close?
Although there are many factors that can influence how long it takes for the deal to close, it’s always a good idea to ask the lender how long it expects to take for the loan to be finalized. This will help you plan your moving schedule.
Are There Any Prepayment Penalties?
Some lenders will charge you a fee if you pay down the mortgage faster than the loan documents call for. This fee can be substantial so it’s a good idea to find out if your lender charges a penalty fee for prepayment.
What Is The Minimum Down Payment?
Many lenders require a minimum down payment from borrowers in order to grant the mortgage loan. It is generally a certain percentage of the total value of the house. Ask your lender if there is a minimum down payment required and what it is. Note that if you put less than 20 percent down, you will likely have to purchase private mortgage insurance which will add to your monthly mortgage payment.
What Are The Closing Costs?
There are a variety of costs associated with sealing your mortgage deal. Home inspection fees, legal fees and title transfer fees are just a few of the many fees you might have to pay. Ask your lender for a summary of all the fees you will be responsible for. Sometimes the seller will help to pay some of these fees. Therefore, it’s always a good idea to ask your lender if the seller is receptive to sharing the cost of the fees.
What Documents Need To Be Provided?
Most lenders will require that you submit a boatload of documentation which verifies your employment, assets, debt and credit history. However, not all lenders require the same level of documentation. Make sure to ask your lender what documents you need to submit for loan approval.
In order to get the best deal on your mortgage, you need to be well prepared. Ask each lender that you meet with the questions just discussed and you’ll avoid financial pain down the road.