10 questions when applying for a mortgage loan
By Bankrate.com
Once you've narrowed the lender field to a short list of finalists,
it's time to compare their offers.
Here are the 10 key questions to ask at application
time to help you find the best overall mortgage
loan. If you have already selected a lender and are ready to
apply, make sure you have the answers to these questions first.
1. What is the interest rate
on this mortgage?
To determine exactly what you'll pay over the term of the loan,
you need to know the rate. Rates change quickly, and if your credit
is less than perfect, you may not be offered the lender's lowest
figure.
To effectively compare different lenders' programs,
ask for the annual percentage rate (APR) of the mortgage interest,
which is generally higher than the initial quoted rate because it
includes all of the lender's fees. But beware: the APR found in
advertisements can be misleading. Mortgage lenders don't always
include all the fees they charge in the calculation that determines
APR, so customers who use that figure to shop rather than an itemized
breakdown of rates, points and fees may end up comparing apples
to oranges.
2. How many discount and origination points
will I have to pay?
Lenders may charge prepaid mortgage interest
points to lower your interest rate or other points that have no
benefit to you at all. Find out how many you'll be expected to pay
and which kind of points they will be.
3. What are my closing costs,
and will you provide a good faith estimate of these costs up front?
Mortgages come with fees for various services provided by lenders
and other parties involved in the transaction. You want to know
what those fees will be as early as possible. Many lenders will
provide a written good faith estimate of closing costs within three
days of receiving a loan application. Many experts advise against
using a lender or broker who is unwilling to do so.
4. When can I lock in the interest rate and
what will it cost me to do so?
Your interest rate may fluctuate between the
time you apply and closing. To prevent it from going up, you may
want to lock in the rate, and even points, for a specified period.
Ask your lender if lock-in fees apply. Also,
find out what the experts are expecting rates to do, read Rate
Trend Index.
5. Is there a prepayment penalty on this
loan?
There may be a prepayment penalty on your loan.
Some penalties are 1 percent of the loan amount, others are equal
to six months' interest, some apply only when you refinance or reduce
the principal balance by more than 20 percent, and some kick in
if you sell your home. Find out the duration of any penalty period
and how the penalty is calculated. Some lenders offer lower interest
rates to buyers who accept prepayment penalties.
6. What is the minimum down payment required
for this loan?
The rate and terms of your loan will be based
on a down payment figure, typically 5 to 20 percent of the purchase
price. If you can put more money down, you may be able to lower
your rate and improve your terms; if you come up short, you may
be required to purchase private mortgage insurance (PMI).
7. What are the qualifying guidelines for
this loan?
These requirements relate to your income, employment,
assets, liabilities and credit history. First-time home buyer programs,
VA loans and other government-sponsored mortgage programs typically
offer easier qualifying guidelines than conventional loans.
8. What documents will I have to provide?
Most lenders will require proof of income and
assets before approving your loan, and may require other documents
as well. Buyers with excellent credit may qualify for a no-documentation
or "no-doc" loan, but they can expect to pay a hefty down
payment and higher interest rate.
9. How long will it take to process my loan
application?
The answer will depend on a number of variables.
When the loan business is brisk, underwriters get backed up, verification
takes longer, appraisals move slower and other bottlenecks develop
along the loan pipeline. Lenders may say two weeks, but 45-60 days
is probably more realistic in most cases. You'll need their best
guess to determine how long to lock in your loan.
10. What might delay approval of my loan?
If you provide the lender with complete, accurate
information, the loan process should run smoothly. If the underwriter
discovers credit problems, however, there could be delays. Make
sure you notify your lender if you change jobs, increase or decrease
your salary, incur additional debt or change marital status between
the time you submit an application and the time the loan is funded.
Put these 10 questions to your leading candidates
and compare their answers. The results should lead you toward the
mortgage lender that is right for you.
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