Applying For A Mortgage?

Buying a home is the single largest investment that most people will make in their lifetime. It is important that you shop around for the best loan for your circumstances. You should be speaking with more than one lender or mortgage broker.

Before you start to shop your loan make sure you review your finances so that you have a good understanding of what you on-going fixed expenses are ( car payment, school loans, credit card debt, living expenses)b and then get estimates on what the additional costs of owning a home will entail ( homeowners insurance, taxes, HOA fees, etc.) Check your credit score, organize your financial documentation, and do not forget to factor in the cash you will need for a down payment AND CLOSING COSTS.

The following are some key questions that you should be asking to determine which is the best loan for you.

1. What is the interest rate on this mortgage?

To determine exactly what you’ll pay over the term of the loan, you need to know the rate. Rates change quickly, and if your credit is less than perfect, you may not be offered the lender’s lowest figure.

To effectively compare different lenders’ programs, ask for the annual percentage rate (APR) of the mortgage interest, which is generally higher than the initial quoted rate because it includes some fees.

2. How many discount and origination points will I pay?

Lenders may charge prepaid mortgage interest points to lower your interest rate or other points that have no benefit to you at all. Find out how many you’ll be expected to pay and which kind of points they will be.

3. What are the closing costs?

Mortgages come with fees for services provided by lenders and other parties involved in the transaction. You want to know what those fees will be as early as possible. Lenders are required to provide a written good faith estimate of closing costs within three days of receiving a loan application. ASK FOR IT AND MAKE SURE YOU GET IT!!!

4. When can I lock the interest rate and what will it cost me to do so?

Your interest rate might fluctuate between the time you apply and closing. To prevent it from going up, you may want to lock the rate, and even points, for a specified period. Ask your lender if lock fees apply. In addition, do some homework and find out what the experts are expecting rates to do in the near future.

5. Is there a prepayment penalty on this loan?

There may be a prepayment penalty on your loan. Some penalties are 1 percent of the loan amount, others are equal to six months’ interest, some apply only when you refinance or reduce the principal balance by more than 20 percent, and some kick in if you sell your home. Find out the duration of any penalty period and how the penalty is calculated. Some lenders offer lower interest rates to buyers who accept prepayment penalties.

6. What is the minimum down payment required for this loan?

The rate and terms of your loan will be based on a down payment figure, typically 3 to 20 percent of the purchase price. If you can put more money down, you may be able to lower your rate and improve your terms; if you come up short, you may be required to get private mortgage insurance (PMI).

7. What are the qualifying guidelines for this loan?

These requirements relate to your income, employment, assets, liabilities, and credit history. First-time homebuyer programs, VA loans, and other government-sponsored mortgage programs typically offer easier qualifying guidelines than conventional loans.

8. What documents will I have to provide?

Most lenders will require proof of income and assets before approving your loan, and may require other documents as well.

9. How long will it take to process my loan application?

The answer will depend on several variables. When the loan business is brisk, underwriters get backed up, verification takes longer, appraisals move slower, and other bottlenecks develop along the loan pipeline. Lenders may say two weeks, but 45 to 60 days is probably more realistic in most cases. You should determine what is a conservative estimate so that you do not contractually obligate yourself to a closing date that you cannot meet.

10. What might delay approval of my loan?

If you provide the lender with complete, accurate information, the loan process should run smoothly. If the underwriter discovers credit problems, there could be delays. Make sure you notify your lender if you change jobs, increase or decrease your salary, incur additional debt or change marital status between the time you submit an application and the time the loan is funded.

Once you have these answers you can start to compare loan products and determine which lender and loan are the best for you.

Filed under: Blog by Kim Bregman
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