Buying a home is often a great long-term decision as it will allow someone to build a lot of personal equity over the long run. When it comes to buying a home, most people will need to take out a mortgage to finance the purchase. When you are talking with mortgage lenders and brokers, there are eight key questions that you should ask. Knowing the answers to these questions will ensure you have a better understanding of the process.
What Do I Need to Apply?
Prior to applying for your mortgage, you first will need to know what documents that you will need to provide. Some of the most common documents and forms that you will need include having your financial records, including your tax returns, bank statements, pay stubs, and other documents for up to the past three years. You will also have to provide information to confirm your identity including copies of your drivers license and proof of residency.
What are the Basic Requirements for Listed Rates?
When you are looking for a new mortgage, you will find that mortgage lenders often post rates online. These rates are often reserved for the highest-qualified borrowers. To ensure that you are going to qualify for these rates, you should figure out what the basic requirements are. This can include having a good credit score and history, having a strong and stable source of income, and having at least a 20% down payment.
How Long Does Application and Approval Work?
If you have found a home that you want to buy, you will likely need to be able to tell the buyer when you will be able to close on the purchase of the home and when you will be able to have your financing in place. Because of this, you will need to know how long the application and approval process will take. Generally, a lender can be in a position to offer a commitment within 30 days and close within 45.
Is the Interest Rate Fixed?
Today, there are many types of mortgage out there. Two of the most common are adjustable rate mortgages (ARMs) and fixed rate mortgages. While ARM loans have lower initial rates, they can increase substantially over time if market rates go up. It is important that you understand what your current rate is, whether it is fixed for the duration of the loan, and what the interest rate could increase to.
Will I Need to Pay PMI?
Traditionally, buying a home required that you put forth a 20% down payment. However, mortgage programs over time have allowed for people to put down far less. While mortgage lenders can accept a loan with less than 20% down, they will now charge private mortgage insurance as well (PMI). It is important to understand what your payment will be if you do have to pay PMI and when the requirement will be dropped.
What are the Total Fees and Costs?
Getting a mortgage can be surprisingly expensive. Mortgage lenders can require you pay a variety of fees including origination fees, appraisal fees, mortgage points, and other closing costs. If you do not check with the lender to confirm what these costs are ahead of time, you could be hit with surprise charges at the closing table. You should make sure to get an estimate of total fees before you submit your application.
Is there a Prepayment Fee?
While you may be able to get a loan with a 30-year amortization schedule, there is also a chance that you may want to pay off the loan early. In most cases you will be able to prepay the loan whenever you want. However, some lenders may require you to pay a fee if you pay off the loan too far ahead of schedule. It is important to understand what those charges could be.
What Other Requirements Do I Have?
Finally, you also need to understand what all of your obligations are once the loan is closed. Generally speaking, you will be required under the loan to pay your property taxes, association fees, and property insurance bills. Falling behind on these could impact the bank’s collateral and could trigger a default.