There are so many things that need to be taken into consideration when you are looking for a mortgage, that many things can get lost in the shuffle. However, it is always going to be in your best interest to evaluate the loan in full, to get a true idea of what the total costs are going to be, and what the process is going to be. There are a few questions that everyone needs to ask their lender, to have a good overall idea of what the process is going to entail. For instance, you should ask how long the application is going to take to review, what the minimum requirements are as far as down payment goes, and whether or not the interest rate can be locked in on the loan.
How Long Does the Application Take?
The typical time that an application takes to process for a mortgage loan is anywhere from 30 to 60 days, with most application approvals taking about 45 days. However, every lender is different, and some are going to be speedier than others. If you have received pre-qualification or pre-approval, then this may speed up the process significantly. Make sure that you understand the total time frame that you are looking at so that you can appropriately plan.
What is the Minimum Required Down Payment?
Many lenders are going to have a minimum required down payment in order to be approved for a mortgage. This is pretty much true for all lenders, and it is not likely that you are going to find a lender that allows you to put zero down on a mortgage. There are some options, though. Depending on the type of product, a gift of the down payment funds from a relative may be allowed. Some products require the borrower to have a minimum down payment investment and other products allow for the entire amount of down payment to be in the form of a gift. Additionally, for qualified borrowers, down payment assistance is an option. Typically, these funds are given by government approved agencies or other non-profit housing organizations.
Should The Interest Rate Be Fixed?
One thing to determine is whether or not the interest rate of your loan should be Fixed. There are two main types of loans, Fixed Rate and Adjustable Rate Mortgages or ARMs. Depending on how long you are planning on keeping the home, may determine the type of product you select. The majority of the mortgages issued are 30 year loans. The most common type of mortgage in the recent years has been the 30 Year Fixed loan. It is loan in which the interest rate is fixed for the entire term of the loan and will be paid off at the completion of the 30th year. The same is true for ARMs, however ARMs typically have a fixed rate period for a certain number of years and then the interest is subject to adjustment based on the current market index at that time. For instance, a 5 Year ARM, is fixed for 5 years and then converts to a variable rate for the remaining 25 years of the loan. Most ARMs adjust on an annual basis and can increase or decrease depending on where the market index rate is at the time of adjustment. Talk with your mortgage consultant to determine what product is best for you.
What Are The Closing Costs?
Closing costs are the fees involved in obtaining mortgage financing. They include such items as the appraisal, title insurance, and government recording fees, just to name a few. Closing costs are a function of the interest rate. For example, you can pay additional cost to receive a lower interest rate. When comparing different mortgage companies rates, it is also important to understand what you are being charged to get that particular interest rate. Ask for a GFE or Good Faith Estimate of settlement charges. This will allow you to compare apples to apples when shopping around for a loan. Once you take application, the lender is bound to the disclosed fees and they are not allowing to increase by more than 10%.
What Is My APR?
Another serious consideration that needs to be taken into account is what your annual percentage rate, also known as an APR will be. The APR is the rate that you are paying to borrow the money. The APR should be fairly close to the actual interest rate that your monthly payments will be based off of. Be careful if the difference is greater than 1%, it could mean you are paying more closing costs and fees than you should be.
Will There Be Additional Fees?
If you are purchasing a home, there could be some additional fees that are not necessarily part of the lending process. Some of these fees are real estate related and you should check with your real estate agent to determine what to expect. Some common out of pocket expenses that are not part of closing costs are inspections. Most buyers will hire a home inspector to make sure the fundamental components of the house are in good working order. Depending on what the inspector finds, some repairs may need to be performed prior to closing on the home. If the home you are buying is in an older neighborhood, it is also a good idea to get a sewer inspection.
When Are Payments Due?
Interest on mortgages are paid in arrears. This means that when you close on a home, you usually don’t have to make a payment the following month. Interest is paid from the closing date to the end of the month, so the earlier in the month you close, the more interest you will pay at closing. If you close at the very beginning of the month, you may be able to take an interest credit to help offset the closing costs if this is a concern. Talk with your mortgage professional to see what option is best for you. Most lenders allow a grace period to make your mortgage payment and do not charge a late fee if the payment is received by the 15th of the month. Another option to discuss with your loan servicer is the ability to make bi-weekly or bi-monthly payments. This can help with cash flow on a monthly basis by making a portion of the mortgage payment when you get a pay check.