Questions? Ask your Lender Before You Buy

Before you commit to any lender, you want to ask some key questions. Not only is this an excellent way to find the best overall mortgage loan, but if you don't like the answers you receive, you can continue shopping. You'll want to choose a lender that you feel comfortable with, and they are knowledgeable about their business. The following are some prime questions to ask.

What is the Interest Rate?

Rates can change quickly, so you will want to find out exactly what you'll be paying over the term of your mortgage loan. If your credit is far from perfect, you may not qualify for the lowest rates.

Ask the lender for the annual percentage rate (APR) of the mortgage interest to effectively compare the various lending programs. The APR that is typically found in advertisements can be misleading because the lenders aren't always up front with all of their fees and charges. It's best to use an itemized breakdown of the points, rates, and fees to get a better grasp of what you'll be paying.

What is the Amount of the Discount and Origination Points?

To lower your interest rate, a lender may charge prepaid mortgage interest points or other points that are of no importance to you. Make sure you find out up front how many you will be expected to pay, and the type of points they are.

What are the Closing Costs?

Mortgages come with an assortment of fees. These fees are provided by the lender and any other party that is involved in your loan transaction. It's important to know the costs of these fees and what they all entail as soon as possible. Your lender is required to provide you with a good faith estimate in writing of what your closing costs will be. This is typically received within three business days of receiving your loan application.

How Soon Can an Interest Rate be Locked In, and Will There be a Cost?

Between the time that you apply for a loan, and the time that you actually close, your interest rate might fluctuate. You may want to lock in the rate and points to prevent them from going up. Check with your lender to see if there are any lock fees. To get a handle on what the rates are going to do, you may want to ask a real estate agent or other expert in the field.

Are There Prepayment Penalties Attached to the Mortgage Loan?

There could be a prepayment penalty of up to 1 percent of the loan amount. Other penalties can be equivalent to six months interest, kick in only if you sell your house, or apply when you refinance or reduce the principal by more than 20 percent. You'll want to find out the length of any penalty period, and you should find out how they calculate this amount. Lower interest rates may be available to buyers who agree to prepayment penalties.

How Much of a Down Payment is Required for the Loan?

The term and interest rate of your loan will be determined on the amount of your down payment. Most buyers put down approximately three to 10-20 percent of the purchase price of the home. If you can put more money down on the home, the lender may be able to give you a lower interest rate and better terms. If you are short on funds, you may be expected to get mortgage insurance.

What are the Requirements for this Type of Loan?

Typical loan requirements relate to your employment status, income, liabilities, credit report and assets. There are programs in place that offer easy qualifying standards other than your conventional type of loan. These include VA loans, other government mortgage programs and first time home buyer programs.

What Type of Documents Will Be Needed for a Loan Verification?

Lenders typically require the standard documents like proof of income, tax returns and assets. If you have excellent credit, you may qualify for a no-documentation loan. However, you can expect to pay a sizeable down payment and high interest rate if you go this route.

A real estate sales representative has the experience and knowledge to give you helpful insight, tools, tips and guidance on how to handle all of your real estate needs.

Daniella Aitken

Daniella Aitken

Sales Representative
CENTURY 21 Miller Real Estate Ltd., Brokerage*
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