mortgage

What to ask when you apply for a mortgage

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Here are 10 key questions to ask at application time to compare mortgage offers.

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, or 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 percent of the loan amount. For example, if you get a $162,000 mortgage and pay one discount point, you'll pay a fee of $1,620, because that's 1 percent of $162,000. (Divide the loan amount by 100 to calculate 1 percent.)

  • 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 companies. Lenders are required to provide a written estimate of these costs within three days of receiving a loan application.

4. When can I lock 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. To keep tabs on rate movements, read Bankrate's Rate Trend Index.

5. Is there a prepayment penalty on this loan?

Some lenders charge a penalty if you prepay on the mortgage. Some apply only when you refinance or reduce the principal balance by more than a certain percentage. Find out the penalty specifics and see if your lender will lower the rate on loans with one.

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 percent, you will probably have to get mortgage insurance, increasing 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 two weeks or as long as 60 days. 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.

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