If you are considering the purchase of a home, especially if it is your first, you may not be entirely sure what all of the fine print in your mortgage means. The process of signing all the home loan paperwork means that you will be jotting down your name dozens or even hundreds of times, and this can make keeping track of the details a challenge. Keep the following five questions in mind to help you ensure that you are prepared and informed before taking out a home loan.
Beginning The Process Prepared
Being prepared is one of the best ways to ensure that you receive a good deal on your prospective home. While details, such as any repairs needed on the property and how much you like the neighborhood, should be determined before you begin finalizing any loan documents, the following questions are important to keep in mind as you evaluate a potential mortgage.
How Much Can I Afford?
One of the most important questions to ask about any mortgage is whether you can afford it. The calculations that determine how much of a loan you qualify for may not consider all of the factors of your regular life; taking out the maximum that you are approved for could result in monthly payments that are too high for your lifestyle.
Consider the monthly bill that would fit comfortably within your budget and work backward from there to determine how much of a mortgage you can afford. If you are transitioning from paying rent to paying a mortgage, remember to evaluate the entire payment each month, not just the principal and interest. You will likely also need to pay property taxes, homeowner’s insurance, and escrow.
What Are The Terms Of The Loan?
The terms of a home loan can significantly impact how large your payments are, how quickly you can pay the loan off, and even how you are allowed to pay it. Determine the due dates of your mortgage payments, as well as whether a prepayment penalty exists that would prevent you from paying extra to lower the principal of the loan faster. If you were planning to pay the loan quickly, also consider whether the loan terms allow for biweekly or other types of payments that you were planning on making use of.
Will I Have PMI?
PMI, or private mortgage insurance, is often added onto mortgages with a low down payment because lenders want to protect themselves in case borrowers default. If you paid less than 20% of the mortgage’s value in a down payment, you likely have PMI on the loan, which will add to your monthly payment. Determine how long PMI will remain on your mortgage, how much it costs, and when it goes away. Many times, it will be waived once you have paid 20% of the total mortgage.
Will May Payments Stay The Same?
Be sure that you understand which type of loan you are agreeing to. While an adjustable rate loan may have lower interest rates and thus seem appealing, remember that this could cause your monthly payment to fluctuate. With a fixed rate loan, your payment will only change if your taxes or insurance change. The type of loan that is best for you will depend upon your financial situation and your own goals.
Do I Have Enough Cash To Close?
The mortgage is not the only time that you will need to pay during the process of buying a home. It takes cash to close; sometimes the seller will cover these fees, but sometimes not. You will also need to fund the escrow account that pays your homeowner’s insurance and property taxes for the year prior to finalizing your purchase. If you are unable to secure the cash up front for these requirements, you should wait before taking out a home loan.
Reach Out To The Mortgage Professionals For More Info On Taking Out A Home Loan
The home buying process can be stressful and confusing, which is why the guidance of a professional can be worth its weight in gold. Fairfax Mortgage Investments makes buying a home simple and stress-free by offering expert advice that can help you to secure more favorable rates and terms for your potential home loan. If this is your first time purchasing a home, you may qualify for special incentives that can cut your costs. Reach out to Fairfax Mortgage Investments for assistance in evaluating your financial situation and taking out a home loan. With more than three decades of experience, we are ready to help you acquire the home of your dreams.