Getting ready to buy a home? Make sure you ask these 10 key questions when you submit your mortgage application:
1. What is the interest rate on this mortgage?
Ask for the lender’s loan estimate, which breaks down the interest rate and fees. It will include the annual percentage rate (APR), which accounts for the interest rate, points, fees and other charges you will pay for a mortgage.
2. How many discount and origination points will I pay?
Lenders may charge discount points, origination points or both. One point is equal to 1% of the loan amount. For example, if you get a $300,000 mortgage and pay 1 discount point, you’ll pay a fee of $3,000 (1% of $300,000).
Discount points reduce the interest rate. They are prepaid interest and are tax-deductible.
Origination points are fees charged by the lender to cover the costs of originating the loan.
3. What are the closing costs?
Borrowers pay fees at closing for services provided by the lender and other parties, such as title and escrow companies. Lenders are required to provide a written estimate of these costs within 3 days of receiving a loan application.
4. When can I lock –in the interest rate, and what will it cost me to do so?
Interest rates might fluctuate between the time you apply for a mortgage and closing. To prevent getting a higher rate, you can lock the rate, and even the points, for a specified period. Fees may apply, but not always.
5. Is there a prepayment penalty on this loan?
Some lenders charge a penalty if you pay off the mortgage before the full term of the loan. Some mortgages have penalties that apply only when you refinance or reduce the principal balance by more than a certain percentage. But sometimes a mortgage such as this comes with other incentives. Find out the penalty specifics and see if your lender will lower the rate if you choose a loan with a penalty.
6. What is the minimum down payment required for this loan?
A bigger down payment might mean a lower interest rate and better loan terms. With a down payment of less than 20%, you will probably have to pay for private mortgage insurance (PMI), which will increase your monthly payment.
7. What are the qualifying guidelines for this loan?
Ask about requirements relating to your income, employment, assets, liabilities and credit history. Qualifications for first-time homebuyer programs, Veterans Affairs loans, and other government-sponsored mortgages are typically less stringent.
8. What documents will I have to provide?
Lenders require proof of income and assets, including bank statements, tax returns, W-2 statements, and recent pay stubs. More may be needed to show your down payment and ability to pay closing costs.
9. How long will it take to process my loan application?
Depending on how busy the lender is, it can take as little as 2 weeks or as long as 60 days. This information is crucial even in the offer stage of a home purchase as you will need to indicate a closing date on your offer. Loan approval and underwriting are common escrow holdups. Be patient and forward any requested documents quickly to speed up the process.
10. What might delay approval of my loan?
A job change, an increase or decrease in salary, a new debt, a change in your credit history or change in marital status could delay your loan approval. The best way to avoid that is to put your financial life in a holding pattern until you reach the closing table.