Mortgages are a complicated business. However, they are also essential for most homebuyers. These questions are designed to help you make the best financial decision for your home buying experience and are the basic, must-ask questions you’ll want to ask your lender before you put pen to paper. It’s uber-important that you get the most information you can from your mortgage lender before you sign or commit to anything, and ensure no surprises at closing or when your first mortgage payment comes due.
Once you’re preapproved, you’ll have a rough idea of how much you can spend, but not necessarily how much you’re comfortable spending. In many cases, you’ll qualify for more than you need, which can lead to inflated expectations. Purchasing a home just because you can get a loan for a more considerable amount is risky. Figure out how much you qualify for, then work backward to determine your hard and soft monthly costs and estimated expenses. You’ll need to consider property fees like insurance, HOA assessments, gas, water, etc., plus any other personal outstanding financial obligations you have like cell phones, car payments, and other loans to gauge where you’re at. Aim to always come in under budget, so you don’t end up in hot water.
Do your homework regarding the different types of mortgages, and then cross-check with your lender. You’ll know you’re talking to the right person if your responses include pluses and minuses of each type of mortgage because a great lender will give you all the info and let you weigh the pros and cons. Don’t let someone pigeonhole you or sell you on one type of mortgage, as everyone’s situation is different, and there’s no one size fits all financing.
Whenever you shop for a mortgage, you’ll have to undergo a hard credit check. These checks can affect your score – so you’ll want to know exactly when they’ll go through. Many lenders pull your credit once at the beginning for preapproval and again before closing and underwriting, so make sure not to make big or extraneous purchases during the process that may affect your credit. For example, wait on buying that new car until you close on your house.
That depends on what you can afford and can vary by lender. 20% is standard, but you can put down less or more. It can take years to save that much cash but don’t let that be a roadblock, as there are workarounds. That being said, the more you can put down upfront, the lower the lending risk, which will get you better rates. Most loans require at least 3-5% and may have other associated fees such as mandatory mortgage insurance.
Private mortgage insurance (PMI) is a monthly fee typically required by anyone who makes a down payment of less than 20%. It does absolutely nothing for you but instead protects the lender if you fall behind on your payments. You can ask your lender to remove the PMI when you have paid down the balance to 80% of the home’s original appraised value. When the balance drops to 78%, the mortgage servicer must automatically remove the PMI payments.
It may be a no-brainer but ask for your monthly payment amount upfront, which should include a breakdown of how much is going towards the principal, interest, insurance, taxes, and other fees. You’ll also want to inquire if you pay your mortgage off early will you have a payment penalty. The answer to this question should always be a hard no; if you get a yes, run.
There are all sorts of fees at closing, from property taxes to appraisal fees, which can be negotiated with both the lender and the seller. Know what you’re responsible for covering and use this as a way to shop around lenders to find the best deal.
Locking in an interest rate guarantees your interest rate won’t change in the period between your offer and closing, as long as you close within a specific time frame (generally a few months). It’s not uncommon for rates to fluctuate up and down from day to day and even from hour to hour, and you need to be able to budget appropriately. In today’s low-interest market, it’s to your advantage to lock in a rate. Inquire if there is a fee associated with doing so and also about a float-down option, which means that if the rates go even lower while you’re locked in, you can get the lower rates, rather than just being protected from rate increases.