Buying a home is a big investment, so before closing your new mortgage or refinancing the mortgage, it is important to ask your lender these 10 questions so that you can make the best possible financial decision. (iStock)
Buying a new home is exciting, but it is easy to lose sight of the main questions to ask your lender before closing the loan. It is important to do your research and obtain as much information as possible before applying for a new mortgage or refinancing your mortgage so that you can make the best possible financial decision.
Before doing anything with a mortgage loan, it is always a good idea to visit a website with several lenders like Credible to compare mortgage lenders and see what kind of mortgage rates are currently available. See if you qualify for a low rate today.
What questions should I ask before closing a house?
Explore the 10 most important questions you should ask a mortgage lender before committing to a home loan.
- What type of mortgage do you offer and what do I qualify for?
- What will my interest rate and APR be?
- How long will it take to apply for and close my home loan?
- What are discount points for loans?
- What fees will I pay?
- Will my rate change over the life of the loan?
- Can I get a rate lock on my mortgage?
- Can you estimate my monthly payments?
- Will I pay for private mortgage insurance (PMI?)?
- Will I pay any prepayment penalty on this loan?
1. What type of mortgage do you offer and what do I qualify for?
After your lender has analyzed your credit and you have determined a budget and an initial payment, you will have a better idea of the type of mortgage loan that best suits your needs. You have several options:
- Conventional mortgage loans: these are not insured by the federal government.
- Fixed rate mortgages: the rate remains the same for the term of the loan.
- Adjustable rate mortgages: these have fluctuating interest rates that increase or decrease based on market conditions.
- Government insured mortgages: these are FHA, USDA and VA loans
- Jumbo Mortgages: loans with non-compliant loan limits, which means that they exceed the limits set by Freddie Mac and Fannie Mae.
If you would like to learn more about the different types of home loans available now, visit Credible.
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2. What will my interest rate and APR be?
The interest rate or annual percentage rate (APR) you qualify for is usually based on your credit score and credit history. Some lenders will also examine your employment history, income, debt-to-income ratio and other factors to determine what rate you qualify for. Generally, you will get a better rate if you have a higher credit score.
It is crucial to work to qualify for the lowest possible mortgage rates. With Credible, you can find out your rate and estimated monthly payment in minutes. Plus, it’s free!
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3. How long does it take to apply for and close my home loan?
The average time between application and closing can take 48 to 51 days, according to Realtor Magazine. That’s four days since last October, when “Know Before You” mortgage disclosure rules came into effect.
In a report, Ellie Mae divides the average closing time by type of loan:
- 49 days: conventional loans
- 51 days: Buying loans
- 48 days: refinancing loans
- 51 days: Federal Housing Administration (FHA) loans
- 53 days: loans from the Department of Veterans Affairs (VA)
Access Credible to compare rates and loan options between multiple lenders with fewer forms to fill out.
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4. What are discount points for loans?
With loan discounts or mortgage points, you pay upfront in exchange for a lower interest rate on your loan. A rate of 1% of the mortgage loan amount equals a discount point, which usually results in a 0.25% cut in the interest rate.
Paying discount points or “paying the fee” is a good option if you plan to keep your mortgage beyond break-even – or when the accumulated monthly savings are equal to the initial rate (points).
Mortgage rates have dropped again to new lows for the 13th time this year.
Current rates as of December 24:
- 30-year fixed rate mortgage – 2.66%
- 15-year fixed rate mortgage – 2.19%
- 5/1 year adjustable rate mortgage (ARM) – 2.79%
Credible can guide you through the process of buying a home – use your free tools to browse different types of mortgage loans and see how much you can pay. You can be pre-approved for a home line in three minutes.
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6. Will my rate change over the life of the loan?
If you have an adjustable rate mortgage, your interest rate may change over the life of the loan. Even if you have a fixed rate mortgage, your payments can increase or decrease if you pay for insurance through a collateral account and if your insurance payment increases or decreases.
In addition, if property taxes change, the security deposit portion of your monthly payments may also change. Or, if you pay mortgage insurance, as soon as you can cancel the insurance, your payment will be changed.
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7. Can I get a “rate lock” on my mortgage?
A “rate lock” on your mortgage, also called rate protection, allows you to “lock” your interest rate for a specific period of time – usually 15 to 60 days. This means that until you close the mortgage, your rate will not increase. No matter what happens in the market, even if interest rates jump by 4%, your interest rate will not change and will be honored by your creditor.
If you want to guarantee a low rate today, visit Credible to see what mortgage lenders are currently offering and what kind of rates you would qualify for in your current financial situation.
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8. Can you estimate my monthly payments?
The mortgage lender can estimate your monthly payments, but usually not before calculating the numbers and pre-qualifying you for a loan. However, you can also use an online mortgage calculator to determine potential monthly payments. A mortgage calculator can provide a complete analysis of costs, including principal and interest, property taxes, insurance and mortgage insurance (if you make an initial payment less than 20%).
9. Will I pay for private mortgage insurance (PMI)?
The payment of private mortgage insurance (PMI) varies from one lender to another. The PMI is used to offset the lender’s risk and is usually charged if you put less than 20% on the purchase of your home.
The PMI is usually paid monthly as part of the monthly mortgage payment. But it can also be paid as a one-time premium at the time of closing. It is difficult to determine how much PMI will cost, but you can estimate about 0.5% to 1% of your loan amount annually. And PMI doesn’t last forever. When the loan balance is 78% of the original cost of your home, the lender must cancel the PMI.
Not sure what you’re going to pay PMI for? Visit Credible to get in touch with experienced credit agents and get answers to your mortgage questions.
10. Will I pay any prepayment penalty on this loan?
Some lenders will charge you a prepayment penalty if you repay the loan before the term expires. Your loan agreement is likely to specify whether and when the penalty applies. If your lender charges you a prepayment penalty, it is usually only in the first three to five years of the loan.
Are you closing a new mortgage or have questions about refinancing your current mortgage? Visit Credible to get personalized rates and pre-approval letters without affecting your credit score.