Top 10 Questions You Should Ask When Applying for a Mortgage

Buying a home is one the most important decisions in your life and it is all governed by the type of mortgage you get. When you apply for a mortgage you need to be very careful to give your final nod on a mortgage offer. Below we discuss ten questions that you should ask your lending agency before making a final selection.

1. What is the interest rate I will be required to pay on this mortgage?
The interest rate is what affects the payments you make over the term of the loan. Don’t be misled by the lender’s advertisements. Depending upon your mortgage type – you can have a fixed rate throughout your loan period or have adjustments made at preset intervals. When calculating the rate, take into account - the prevailing interest rate in the market, your credit score, closing costs and the fees that you are required by the lender.

2. How many points affect my mortgage?
Beware when the Lenders charge you points – they may charge prepaid mortgage interest points to lower your interest rate. They also charge other points that have no benefit to you at all. It is always prudent to ask how many points are being applied to your case and how they affect your payment.

3. What are the closing costs?
You are required to pay the lender fees for various services provided by them and other parties involved in the deal. These fees are known as closing costs and they are a part of your mortgage. It would be prudent on your part to carefully review the good faith estimate from the lender about the closing costs, which must be sent to you within three days of receiving a loan application.

4. When can I lock-in the interest rate and does it involve a fee?
During your negotiation the interest rate might still fluctuate. It may be prudent to lock-in a low rate, especially if they are expected to increase. Refer to the Rate Trend Index to get your information. Similarly, you need to calculate and lock-in points. However, don’t forget to ask your lender if lock fees apply.

5. Is there a pre-payment penalty?
Depending upon your mortgage contract; you may have pre-payment penalties on your loan. Typically, penalties can range from 1% of the loan amount, to six months' interest. Some lenders may have other stipulations such as, you can only pre-pay if you refinance or reduce the principal balance by more than 20% or if you sell your home. Be forewarned that many lenders may offer you a lower rate in exchange of pre-payment penalties. In such a scenario, don’t forget to ask how the penalty is calculated and how long is the penalty period?

6. What is the minimum down payment required?
Most experts recommend that you should put a down payment of at least 20% of your home’s cost. However, that may not be the requirement of the lender. They may accept a down payment ranging between 3% to 20% percent of the buying price. It’s sensible to put down a higher amount as a down payment because it lowers your rate and improve your terms. Paying a higher down payment may also eliminate the cost of private mortgage insurance (PMI) required by the bank.

7. What are the qualifying guidelines?
Every lender has their set of qualifying guidelines pertaining to your income, employment, assets, liabilities and credit history. If you are a first-time home buyer; you may want to assess the VA loans and other government-sponsored mortgage programs, since they are simpler to qualify for than conventional loans.

8. Which documents do I need to file?
Primarily, you will need to submit proof of income and assets. But different lenders may follow different lists of documents that you need to file. If you can not document your income you may qualify for a no-documentation or "no-doc" loan.

9. How long will it take to process my loan application?
This information is important in order to lock-in your rate. However, it depends on lot of factors such as - underwriters, verification and appraisals. Although lenders may estimate two weeks, bottlenecks tend to develop, slowing down the process. Most experts suggest to budget in 45 to 60 days in most cases.

10. What delays to expect?
Typically, if you have filed all your paper-work well, then the loan process should run smoothly. However, in case there have been any changes at your end, between the time you submit an application and the time the loan is funded, you should contact your lender and inquire about the change of status to avoid any delay at the time of underwriting.