Getting ready to buy a home? To avoid surprises and make sure you’re getting the best deal, 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, or APR, plus information about points, fees and other add-on charges you will pay for a mortgage.
2. What 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 take out a $162,000 mortgage and agree to pay 1 discount point, it will amount to 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 closing costs within three days of receiving a loan application.
4. When can I lock the interest rate, and will it cost me?
Interest rates might fluctuate between the time you apply for your mortgage and your closing. To avoid winding up with 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, follow 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 the penalty 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 give you a lower interest rate if you choose a loan that comes 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. On the other hand, a down payment of less than 20 percent will likely require you to get mortgage insurance, increasing your monthly payment.
7. What are the qualifying guidelines for this loan?
Ask if there are any requirements you’ll have to meet related to your income, employment, assets, liabilities and credit history. First-time homebuyer programs, Veterans Affairs loans and other government-sponsored mortgages typically have less stringent standards.
8. What documents will I have to provide?
Lenders require proof of income and assets, including bank statements, tax returns, W-2 forms and recent pay stubs. More paperwork may be needed to show that you can make your down payment and are able 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 submit any requested documents quickly to speed up the process.
10. What might hold up approval of my loan?
A job change, an increase or reduction 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.