Buying a home should be one of the momentous events of your life, so before you refinance your mortgage or mortgage loan, it is important to ask your tenant the best questions you can ask. (iStock)
Buying a new home is exciting, but it’s easy to lose sight of the most important questions you need to ask your lender before you take out a loan. It is important to do your research and gather as much information as possible before applying for a new mortgage or refinancing your mortgage so that you can make the best possible financial decision.
Before doing anything with a mortgage loan, it is always a good idea to visit a website with many lenders like Credible to compare mortgage lenders and see what kind of mortgage rates are currently available. See if you qualify for a low rate today.
What questions should I ask before closing a home?
Study the ten most important questions you need to ask a mortgage lender before taking out a home loan.
- What type of mortgage loan do you offer and what do I qualify for?
- What will be my interest rate and April?
- How long will it take to apply for and close my home loan?
- What are loan discount points?
- What fees will I pay?
- Will my rate change during the term of the loan?
- Can I get an interest rate on my mortgage?
- Can you estimate my monthly payments?
- Will I pay private mortgage insurance (PMI?)?
- Will I pay penalties on the loan?
1. What type of mortgage loan do you offer and what do I qualify for?
Once your lender has reviewed your credit and you have determined a budget and prepayment, you will have a better idea of the type of mortgage loan that best suits your needs. You have different choices:
- Conventional mortgage loans: it is not insured by the federal government.
- Mortgages with fixed interest rates: the rate remains the same over the term of your loan.
- Mortgage with adjustable rate: it has fluctuating interest rates that rise or fall based on market conditions.
- Government secured mortgage loans: these are FHA, USDA and VA loans
- Jumbo bonds: loans with non-matching loan limits, which means that they exceed the limits set by Freddie Mac and Fannie Mae.
Visit Credible if you want to learn more about the different types of home loans.
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2. What will be my interest rate and April?
The interest rate or annual percentage rate (APR) you qualify for is usually based on your credit score and credit history. Some lenders also look at your employment history, income, debt-to-income ratio and other factors to determine what rate you qualify for. In general, you will get a better rate if you have a higher credit score.
It is essential to work to qualify for the lowest mortgage rates possible. With Credible you can find out your rate and estimated monthly payment in minutes. Plus, it’s free!
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3. How long will it take to apply for and close my home loan?
According to Realtor Magazine, the average time from application to time can be between 48 and 51 days. It has risen four days since last October, when the rules on announcing mortgage loans came into force.
In a report, Ellie Mae gives the average time for closing according to the type of loan:
- 49 days: conventional loans
- 51 days: purchase loans
- 48 days: refinance loans
- 51 days: Federal Housing Administration (FHA) loans
- 53 days: loans by the Department of Veterans Affairs (VA)
Go to Credible to compare rates and loan options between different lenders with fewer forms to fill out.
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4. What are loan discount points?
With loan discounts or mortgage points, you pay more in advance in exchange for a lower interest rate on your loan. A fee of 1% of the mortgage loan amount is equal to one discount point, which usually results in a reduction of your interest rate of 0.25%.
Paying off points, or ‘paying off the rate’, is a good option if you plan to keep your mortgage beyond the break-even point – or if the accumulated monthly savings are equal to the previous (points) fee.
Mortgage rates fell to new lows for the 13th time this year.
Current rates from 24 December:
- 30-year fixed-term mortgage loan – 2.66%
- 15-year fixed-rate mortgage loan – 2.19%
- 5/1-Year Adjustable Mortgage (ARM) – 2.79%
Credibly, you can guide you through the home buying process – use their free tools to browse different types of mortgages and see how much home you can afford. You can be approved for a home line within three minutes in advance.
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6. Will my rate change during the term of the loan?
If you have a default rate mortgage, you can change your interest rate for the duration of your loan. Even if you have a fixed interest rate loan, your payments can go up or down if you pay your insurance through a surety account and if your insurance payment goes up or down.
If your property taxes change, the deposit portion of your monthly payments may also change. Or if you pay a mortgage insurance, your payment will change as soon as you can cancel the insurance.
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7. Can I get a ‘rate lock’ on my mortgage?
With an “interest rate lock” on your mortgage, also called interest rate protection, you can “lock in” your interest rate for a specific period – usually 15 to 60 days. This means that until you close your mortgage, your rate will not increase. No matter what happens in the market, even if interest rates take a 4% increase, your interest rate will not change and will be honored by your moneylender.
If you want to ensure a low rate today, visit Credible to see what mortgage lenders are currently offering and for what types of rates you are eligible for your current financial situation.
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8. Can you estimate my monthly payments?
Your mortgage lender can calculate your monthly payments, but usually only if it contains the numbers and you qualify for a loan in advance. However, you can also use an online mortgage calculator to determine potential monthly payments. A mortgage calculator can give you a complete breakdown of the costs, including interest and interest, property taxes, insurance and mortgage insurance (if you repay less than 20%).
9. Will I pay private mortgage insurance (PMI)?
Whether you pay for a private mortgage insurance (PMI) varies from one lender to the next. PMI is used to offset the borrower’s risk and is usually charged if you are less than 20% lower when buying a home.
PMI is usually paid monthly as part of the monthly mortgage payment. But it can also be paid as a one-time premium during closing. It is difficult to determine how much PMI will cost, but you can estimate about 0.5% to 1% of your loan amount annually. And PMI does not last forever. If your loan balance is 78% of the original cost of your home, your credit provider should lower the PMI.
Not sure you will pay PMI? Visit Credible to get in touch with experienced loan officers and answer their mortgage questions.
10. Will I pay penalties on this loan?
Some lenders will charge a down payment penalty if you repay your loan before the end of your term. Your loan agreement is likely to spell out if and when the penalty applies. If your lender charges a down payment penalty, it is usually only within the first three to five years of the loan.
Are you entering into a new mortgage or have questions about refinancing your current mortgage? Visit Credible to get personalized rates and pre-authorization letters without affecting your credit score.