Ask Your Mortgage Lender – 6 Things You Need to Know

by Dec 28, 2016

If you are in the market to buy a house, you are probably spending hours poring over internet searches looking for the perfect fit. This can be a fun process and while it seems like it would be the most important step in the home buying process, do not overlook the steps necessary to obtaining a favorable mortgage. Each mortgage lender and loan are not created equal, so it’s important to know what you are looking for before you commit to the biggest purchase of your life.

Know Before You Owe

In October of 2015, the Consumer Financial Protection Bureau (CFPB) implemented a program to help homeowners be able to understand their mortgage documents easier. The Know Before You Owe mortgage program has made it easier for homebuyers to compare lending documents and to understand what is included. The new documents make it easy for consumers to compare the interest rates and loan amounts from one mortgage lender to the next. This helps to empower the consumer into comparison shopping to find the best mortgage for their situation.

Interview Potential Lenders

Obtaining a mortgage can feel like a personal and financial interview, however, it’s important for you to be prepared with the right questions to ask your potential mortgage lender. By doing this you will know you are finding a lender that is a good match for you and that you understand what you will be agreeing to in your loan documents. Here are 6 key questions to ask your lender:

  1. Does the quoted rate include points?

Mortgage points are a fee that you pay upfront that then lowers the interest rate that you pay on your loan. Points are equal to 1% of your mortgage amount, which can add up quickly. Make sure to find out how many (if any) points are included.

  1. How much are the closing costs?

The closing costs on a loan are essentially the fees that are paid to the mortgage lender and any third party providers. They usually equal 2% to 5% of your total loan amount. This can be a large amount of money, and one that you need to pay at the closing.

  1. How much is the down payment?

Loans come with a wide range of down payments options depending on your situation. From the start, make sure to ask you lender what type of down payment you are required to make. If the required amount is less than 20%, you might be required to add Private Mortgage Insurance, so make sure you follow up with this question.

  1. What type of interest rate do I have?

Is your mortgage lender offering you a fixed-rate mortgage or an adjustable-rate mortgage (ARM)? A fixed-rate mortgage keeps your interest rate consistent over the life of your loan. An ARM gives you a low interest rate for a designated time period, and then increases annually over the remainder of the loan.

  1. Can I lock in my interest rate?

Your interest rate is not a guarantee until your loan is closed. Find out if your lender can lock down the interest rate for you so you will not be caught off guard by an unexpected jump in the rate at closing.

  1. What are the prepayment penalties?

Some lenders will charge you an extra fee if you pay off your mortgage early. Know before you owe, what penalties you could face if you are ready to pay your mortgage off before the term is up.

You don’t have to settle for the first mortgage lender that you speak with. Make sure you are comfortable with the lender and the loan options that they are offering you. Ask the above questions to make sure you always “know before you owe.”

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