By Charlestien Harris
Right now the housing market is booming and a lot of people are shopping for a mortgage. Low interest rates and more options for refinancing are driving the market. This process can be stressful and time-consuming, especially if it’s your first time buying a home.
Nobody wants to feel like they’re making a monumental decision without knowing facts. For those of you that are thinking about buying a house, here’s a list of ten questions to ask your mortgage lender, before you sign anything.
1. What type of loans do you offer and what are the qualifying guidelines for each? There are many different types of mortgages, including: Fixed-Rate, Adjustable Rate, Federal Housing Administration/USDA and Veteran’s Association. Don’t be afraid to ask them to explain each one to you and their pros and cons.
2. What is the interest rate and the annual percentage rate (APR)? The interest rate is going to be based on the size of the loan, the type of loan and your credit score. Interest accrues over the life of your loan and can add up considerably over a 15-30 year span. The APR includes both the interest rate and all other lender fees, divided by the loan’s term.
3. What is my monthly payment? If you are trying to develop a budget for when you’ve moved into your home, you’re going to need to know what your monthly expenses are going to look like. Make sure you include taxes and insurance in the calculations. Remember that your monthly payment shouldn’t be so large that you can’t also budget for unexpected expenses and a retirement fund.
4. Will a down payment be required? This is important because interest rates and monthly payments may vary considerably depending on the size of your down payment. This also factors into whether you’ll be required to pay mortgage insurance.
5. Is there a prepayment penalty? It’s important to make sure your lender won’t charge you for paying off your loan early. Some lenders charge an additional processing fee for each overpayment, while others ask for six months of unearned interest.
6. How long does it take for a mortgage loan to close? It can vary from lender to lender, but a top-rated company should be able to close between 30 to 45 days from application. In order to expedite this process, it’s a good idea to have all the necessary documentation ready beforehand and stay in constant contact with your lender.
7. What are closing costs? Some of the largest expenses involved in the purchase of a home are closing costs. Closing costs are fees that are paid at the end of the transaction, once the home is ready to be transferred from one owner to another. These costs can be paid by the seller, the buyer, or shared by both.
8. What fees and other costs will I have to pay? Costs generally include an appraisal, credit report, title policy, pest inspection, escrow if applicable, recording fees, and taxes. Many of these fees will be included in closing costs.
9. What is escrow? The term “escrow” refers to the period between the moment the buyer agrees to buy the property and the closing of the transaction or when the title of the property is transferred to the new owner. During the escrow process, you will be asked to deposit money into an escrow account. This initial deposit is known as good-faith earnest money.
10. Are you going to sell this loan or keep it? Many lenders sell their loans forward in order to gain more capital and be able to make new loans. The Real Estate Settlement Procedures Act (RESPA) requires lenders by law to inform you of this within three days of your application. The Servicing Disclosure Statement should clearly explain whether the lender will: keep the loan, so all servicing fees go to your original lender; sell the loan before the first payment is due, so all servicing will come through another company, or sell the loan at some future period. What’s important for you to know is that the terms of your loan cannot change and that you must be informed 15 days before the effective transfer. RESPA also protects you from late fees during the first 60 days after said transfer.
You should never be afraid to asks questions when it comes to your money. You should also know which questions to ask and how the answers to those questions will affect your ability to purchase your first home. For more information, you can always contact a HUD-approved counseling agency such as Southern Bancorp Community Partners. Until next week, stay financially fit.