By spending some time reviewing the following questions, you can ask the right questions and know the right answers to find the home mortgage that is best for you.
Questions to ask yourself:
- How long do I plan to be in the home?
- What amount can I realistically afford for monthly payments?
- When I decide how much I can afford per month, am I taking into account the other expenses of home ownership, both expected and unexpected?
Questions to ask the lender
- What are the current residential mortgage interest rates?
- What are the various point-to-interest ratios being offered? (A point is one percent of the loan amount and is usually paid at closing).
- If I pay more points, can I lower the interest rate? (This can often help you qualify more easily by lowering the amount of your monthly payments).
- What is the difference between a 15-year and a 30-year loan? (Which fits your plans for the future and your ability to qualify?)
- What is better for me, a fixed-rate or an adjustable-rate mortgage?
- With an adjustable-rate mortgage, how often is the interest rate adjusted, what is the adjustment based on, and what is the most that the interest rate can be raised (or lowered) a year?
- What is the highest possible rate I may have to pay on an adjustable-rate mortgage? Is there an interest cap on the life of the loan?
- With an adjustable-rate mortgage, will I benefit from declining interest rates and is there a floor on the interest rate?
- What other types of mortgages are available, and would any of them fit my eligibility if applying for VA loan?
- Is the interest rate quoted at the time of loan application locked in, and will I close at that same rate? (Some lenders may require a fee to lock in the loan. However, if rates are low and you expect them to rise, it may be worth it to lock in the rate).
- Does the lender require an escrow account? (Escrow money is collected by the lender each month, in addition to your mortgage payment, in order to pay your property taxes and home owner's insurance).
- What will my monthly payments be? (Compare several type of mortgages with different interest rates).
- How much is required for a down payment? (Different lenders may have different requirements).
- Is the loan assumable, or will there be a due-on-sale clause? (An assumable loan can make a home easier to resell).
- Does the loan have a prepayment penalty? (If you wanted to pay off the loan early, could you do it without penalty?)
How long will it take for the lending institution to process the loan?
- What does it take to get the property approved? (Usually an appraisal and title search are required by the lending institution).
- What were the results of the appraisal? (As long as you are paying for an appraisal, you might as well learn the results)
- Is the lending institution a local company, and is my loan serviced locally? (If you have any problems or questions, a local company can handle them more easily.)
- What title company should I use? (If you don't have one, ask the lender for several recommendations, and the possible advantages of one over another.)
- Do I pay the points at closing or can I roll them back into the loan? (This raises the amount of the loan and therefore your monthly payments, but saves in closing costs.)
Questions the lender may ask you
- Do you have funds set aside for a down payment and closing costs? (Be prepared to show proof.)
- Where do you work, and what is your job history during the past two years? (Lenders want to see signs of stability. If you changed jobs they look to see if you stayed in the same field.)
- What is your educational background? (To the lender, this may reveal future earning power.)
- What is your monthly income? (If you are self employed, be prepared to supply your previous two tax returns.)
- Where have you lived the last two years? (Be prepared to supply the name of your landlord in case the lender wants to check the promptness of your rent payments.)
- What charge accounts do you have and do you owe any large amounts on those accounts? (Come prepared with account name and numbers.)
- What are your bank accounts and the account numbers?
- What assets, other than savings and checking accounts, do you have?
- Do you carry a life insurance policy, and for how much? (Have the insurance company name and your account number handy.)
Questions to ask before closing
- How much money will I need for closing, and what are all the closing costs?
- Do I pay all of the closing costs, or will the Seller be covering some of them?
- How many months of taxes and insurance will be collected for the escrow amount? (This usually depends on what month of the year you close.)
- Can I choose my own insurance company?
- How much, if any, of the closing costs are tax deductible?
- Can I write a personal check for the closing costs, or will I need to have a cashier's check?
- By learning the answers to these questions and being prepared for those asked by the lender, you will enter into a mortgage contract informed and quite confident. Best of all, you will have the mortgage that is best for you.
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