Buying a new home is a big financial commitment and before you even start house-hunting you need to do some homework and find out how much that dream pad is going to cost you. A good mortgage lender will take time to examine your personal finances and arrive at the right loan to suit you and your circumstances. Here are the 7 must-ask questions when going through your mortgage application with your chosen lender.
What’s the interest rate and monthly payments?
This is the most vital piece of information. Ask the lender for a direct interest rate quote and the APR (Annual Percentage Rate). The APR is the number you use to make comparisons between lenders so you can shop around. Ask them to estimate your monthly repayment - this will tell you definitively whether or not you can afford it.
What points are included?
The lender’s quote should include an estimate for Discount and/or Origination points. A Discount point is included where you’re pre-paying interest on the mortgage loan. The more points you “buy”, the lower the interest rate. The lender may add Origination points to the interest rate to cover any overhead costs for the loan. Both types of points are payable at closing.
What are the estimated closing costs?
You are liable for any fees for services accrued by the lender when arranging your loan which are payable at closing. These may include attorney fees, loan arrangement fees, appraisal fees, insurance, etc. The lender should provide you with an estimate so you can budget for them.
Can I lock the interest rate and when?
If your lender is offering a particularly good rate you may want to “lock it down”. This will fix it in case general lending rates go up between your loan approval and your closing date. The lender may charge a fee for this so make sure they tell you up front first.
What down payment will I need?
Down payments vary from loan to loan. You can expect to need at least a 20% down payment with most mortgages and generally the bigger the down payment the lower the interest rate. There are mortgages that will allow you to make a smaller down payment but then you may need to take out insurance so check this out too.
How do I qualify for this loan?
Your lender should tell you what the income, employment status, debt, and credit history requirements are for the loan he’s recommending. He should also tell you what documentation you need to produce to prove your current financial position plus proof of your ability to make the down payment and pay the closing fees.
How long will it take?
Your lender should be able to yell you how long the loan application will take and when to expect closing – important as that’s when all the fees etc. become due. You should also ask if he anticipates any delays.