Mortgage Basics for Beginners: Most Important Questions to Ask Lenders
To buy valuables, mostly you need to get a mortgage loan. How to get the loan and how to choose the lender, you need to do a massive home work and see the options you have. Here we will discuss on mortgage basics to make the Loan process easier. We also check top 10 most important questions to ask lenders.
Once you have short listed potential lenders, you have to make decision about choosing a right mortgage provider. You can ask some important questions in order to find out what they have to offer and how to make the process easier. Following given are some of the basic questions about mortgage.
What are the qualifying guidelines?
To qualify for the mortgage loan, applicant needs to meet certain eligibility criteria. Whether you qualify for it or not will decide whether you can apply for a particular mortgage. You can ask the lender for qualifying guidelines. Usually it includes your credit worthiness and history, employment, earnings and assets you possess. Generally the first time home mortgage plans are offered with easier qualifying requirements.
What is the down payment?
Down payment is generally between 3 – 20% of the full purchase price. Usually it is non-refundable if things don’t work out. The amount of down payment works as very important factor in deciding interest rate on mortgage. More the down payment, it is likely that interest rate will be low. You have to check your finance before putting a large down payment and see that you will be able to manage your monthly mortgage instalment pay. It is better you negotiate with mortgage lender.
Which documents are needed?
“Mortgage Paperwork” is mostly providing documents such as showing how much you earn, your account balances, annual household income, monthly household debt expenses, assets etc. These documents are standard protocols and provide an estimate to the lender about the mortgage amount that can be approved. So you make sure that you collect all the necessary documents so that you can get mortgage easier.
You have to get an estimate of how much you will have to pay in total for borrowing the money. It is decided mainly by the interest rate on the mortgage and it is expressed as a percentage. Depending on several national and economic factors mortgage interest rate varies often. Credit rating also acts as deciding factor on interest rate and low credit rating finds negative impact upon the interest rate offered to you.
Do I have to pay any discount or origination points?
A point is a fee equal to 1 percent of the loan mortgage. A lender can charge you 1, 2 or more points. There are two kinds of points.
Discount points: These are actually prepaid interest on the mortgage loan and usually you pay it to reduce interest on your mortgage. The more points you pay, the lower the interest rate will be. Depending upon how much interest you want to lower. It is tax deductible.
Origination points: This is charged by the lender to cover the costs of making the loan. It is deductible if it was paid towards getting the mortgage and not towards paying other closing costs. It is not deductible if paid towards other costs such as notary fees, preparation costs and inspection fees etc. You have to find out how much and when you have to pay for points with the lender.
Mortgage rate lock is a guarantee that the lender will deliver a specific combination of interest rate and points if the mortgage deal is made by a specified date. Typically the rate lock can be for 30, 45 or 60 days. As interest rate fluctuates often, it is a prudent move to lock your interest rate when the rates are rising. Check with the lender if the rate can be locked.
Is there a prepayment penalty on the loan?
Penalties may be charged if you miss out on regular monthly payment. Prepayment can save you a great deal of money if you can offer it. Some of the lenders have a prepayment penalty that can compensate if the borrower misses out. The pre-payment amount can vary from 1% of the loan to six months of interest. Some lenders also offers mortgage at low interest if you pay a prepayment penalty. You find out with the lender about it and how it is calculated. You try to work out it in such a way that it offers maximum benefits.
Closing costs are the fees you will have to pay for running your credit report and the processing fees for your mortgage loan. Closing costs are hidden fees for your mortgage. It depends on where you live and the property you intend to buy. You have to seek a realistic estimate of closing fees from the lender before you choose specific lender.
How long will my loan application take to be processed?
The time taken for processing a loan depends on various factors such as valuation requirement, availability of supporting documents such as your income, asset, credit card statement etc., complexity of loan and many more. To make the processing faster, you check the document requirements prior to applying for the loan. Usually it takes 45-60 days for processing.
No delay is caused if you have provided up to date required documents in the first place. It gets delayed if the underwriter finds problems with your credit report. You have to inform the lenders if any job changes or other changes that could affect the process. You inquire about any scenario they would need to know about which the loan’s approval process takes longer and see if it could be avoided.
By asking right questions to the lender regarding mortgage, you can work out what needs to be done to make the loan process easier and faster.