5 Important Questions for Mortgage Lenders
Everyone loves surprises, unless they don’t. If you’re taking out your first mortgage, the last thing you want is a surprise. You need to know exactly how the process will work and how much it will cost. To avoid unpleasant or costly surprises, ask your mortgage lender these 5 questions.
1. Which loan is best for me?
A traditional mortgage is a 30-year fixed-rate loan and the interest rate never changes. Taxes and insurance may increase, but you pay the same principal amount plus interest throughout the life of the loan. Fixed rate loans are also available for 15 years.
For adjustable rate loans, the interest rate is tied to a reference rate, such as the prime rate. They generally start at lower rates than fixed-rate credit, but rates can go up or down.
Interest credits only have smaller monthly payments, but the total amount you owe will not decrease. At some point, you’ll have to replace it with a larger payment or you’ll never be able to pay off the house.
A negative amortization loan is like an interest-only loan, but you only pay a portion of the interest. In fact, the total amount you owe increases.
Any of these may apply to your situation. The mortgage lender will explain how each one will work specifically for you.
2. What is the total cost?
In addition to the fees you agree to pay the seller, you will also be charged a fee. This is called the settlement cost. They are just as important as interest rates when comparing mortgages. You can pay out of pocket, but most buyers add most of this to their mortgage.
These fees include application fees, appraisal fees, credit check fees, origination and underwriting fees, title insurance, title search fees, recording fees, transfer fees, and property inspection fees. Closing costs are typically 2-5% of the mortgage.
There may also be discount points, mainly prepaid interest. If you pay a point up front, your interest rate is reduced by 1%. Like the interest you pay each month, it’s tax deductible.
Sometimes the borrower must pay the original points to the lender in order to grant the loan.
Your monthly payment depends on the size of the loan and the interest rate, so lower interest rates may help. Some of the factors that determine the interest rate are:
- credit score The higher your score, the lower your ratio.
- Reception. Rates vary by state and even within states.
- Payment in advance. Lenders are willing to offer lower interest rates to borrowers.
- borrowers with large down payments.
- loan term. The smaller the duration, the smaller the ratio. 15-year loans have lower interest rates than 30-year loans.
- Fixed and Adjustable Rates. Adjustable rate loans have lower initial interest rates. However, the adjustable rate varies over the life of the loan, so it may end up being higher or lower than the fixed rate.
- Loan type. Interest rates on FHA, VA, and USDA loans are sometimes lower than traditional loans due to government support. However, the cost of these special credits can also end up making them more expensive.
If you start the mortgage process and expect a specific rate, it may not be the closing rate. Prices go up and down. Sometimes you can prevent the rate from rising by preventing it. There may be a charge for the lock, but usually there is no charge. If interest rates go down, you may or may not get a lower rate. Ask before closing.
3. Is there a penalty for early repayment?
- Let’s say you take out a mortgage and in a year interest rates drop and you want to refinance.
- In some cases, there will be a prepayment penalty, which is an additional cost for paying the
- original loan. This is to protect lenders, who spend the money to start a
- mortgage, which will fail if they do not charge interest for at least a few years. The fines for payment
- Advance payments generally only apply to the first few years of a mortgage.
4. What is the minimum down payment I can get?
20% discount is the «gold standard» for the best price. However, traditional and FHA credits are available with a 3% or 3.5% down payment. You will pay higher interest rates and must have private mortgage insurance. If you’re a veteran or a qualified homebuyer in rural areas, you can get interest-free loans from the VA and USDA.
5. What other fees should I take into account?
There may be miscellaneous fees, such as flood letters, tax filing fees, or credit reports. While the seller typically pays a commission, the buyer’s agent may charge a flat fee.
Property taxes and insurance are usually deposited by a third party. As part of your monthly payment, you enter an escrow account and the lender makes regular payments. It is important to know all the details of your obligations. Mid-America Mortgage will sit down with you, answer your questions, and help you choose the mortgage that’s right for you.