Deciding to take out a mortgage is one of the biggest financial decisions most people will make in their lives. This means that thoroughly understanding the process and how it will impact your financial future are critical. As you shop around for a mortgage lender to acquire a home loan, do not be afraid to ask questions.
After all, your mortgage is about you, and it should reflect your goals and needs. If you are not sure what you need to know about a mortgage, consider asking the following questions to any lender you are thinking about working with.
Question 1: What Are the Terms of the Loan?
Any loan comes with terms, from how long you have to pay it off to what your interest rate is and how it is calculated. For a mortgage, be sure you understand whether you are taking out an adjustable rate mortgage (where the interest rate may change from time to time), a fixed-rate mortgage or some other option.
It is also important to understand what your interest rate actually is and whether the rate is subject to change before closing. Some lenders may lock the interest rate so that market fluctuations will not impact it prior to closing.
Question 2: What Are the Loan Requirements?
In order to qualify for a loan, borrowers typically need to fulfill some requirements. These may include a certain amount in a down payment depending on the loan, how much income or debt you already have and what your credit score is.
While these factors will not typically completely disqualify you from getting a loan, they can make the terms more expensive by increasing your interest rate or requiring protections such as mortgage insurance if you are considered a risk to lend to.
Question 3: What Are the Costs and Potential Penalties?
Mortgages cost more than the dollar amount of the house; they include fees such as closing costs. During the process of finalizing a mortgage, you will be expected to pay additional costs such as origination fees, appraisal fees and title insurance, if you elect to purchase it. Some fees are optional but worthwhile, and others are mandatory.
In general, you can plan for between 3% and 6% of your loan’s total value to comprise closing costs, but your lender can help you understand your fees. Additionally, be aware of whether your servicer allows you to do things such as pay extra or pay early on your mortgage. Sometimes, these actions cause fees.
Question 4: What Will the Payment Be?
Of course, knowing how much your actual mortgage payment will be is critical to planning for your future. Your lender can help you to estimate what your mortgage payment will look like so that you can be sure it fits into your budget. If you need assistance understanding how much house you can afford, your lender can evaluate your situation and run the numbers for you.
Remember that your mortgage payment includes multiple parts; some of your payment will go to escrow or property taxes, some to interest and some to the loan’s principal. Your lender can break these details apart for you.
Question 5: Do You Offer Points?
Some lenders offer the option to purchase “points,” which are optional fees that you can pay up front to secure a lower interest rate on your loan. Each mortgage point costs 1% of your loan’s value in exchange for reducing the interest rate on the mortgage.
For some people, this option makes sense, especially if they plan to live in the house for a long time and make payments over a long term, such as 20 or 30 years. This interest rate reduction can mean tens of thousands of dollars in savings.
However, for those planning to pay off the mortgage early, paying for mortgage points could cost more than the amount that would be saved in reduced interest. Your lender can help you understand if points are right for you and whether they offer them as an option.
Work with the Mortgage Pros to Secure the Best Loan for You
Working through all the details of a mortgage can feel overwhelming, which is why it is important to work with a lender who can help you understand all of the moving parts of this often large loan. The experts at Fairfax Mortgage Investments can help you more thoroughly understand your entire financial picture in light of a mortgage and educate you on acquiring the right loan for you. Reach out to schedule an appointment to discuss your options.