For most people, entering a mortgage agreement is the single largest financial responsibility of their lives. Finding the best loan is more complicated than simply accepting the first mortgage offered at your bank, though. Various lenders offer different arrays of loan types and terms, so we do recommend that everyone takes the time to shop around before signing a loan agreement.

The best way to determine which of the potential home loans is the most advantageous is by asking the best questions!

The answers to the following questions will yield a great deal of information for you to examine, which will ensure that you’re fully prepared to choose the single best mortgage for your situation.

Will you be performing a hard credit check on me today?

Hard credit checks show up on your credit report, but they are necessary before a lender can quote you a firm, accurate interest rate. Because you’ll be shopping multiple lenders, do your best to time these hard credit checks to occur within a few weeks. This strategy will reduce their impact on your credit score.

Do you charge any upfront or nonrefundable fees?

A fee for a credit check should be expected, but you should not be told you’ll be charged for a loan estimate, or to ask questions about the best loan for you. If a lender says you’ll be charged for a consultation, don’t waste your time—move on to a better lender.

Which types of mortgages do you offer?

Discuss every type of mortgage loan that a lender presents to you as an option. The more information you have, the better.

Ask each lender about the following types of loans:

Conventional Fixed-Rate Mortgages

30-year fixed-rate conventional loans are the “default,” most common type of mortgage. Entering a long mortgage agreement will keep your monthly payments lower, and a fixed APR will keep your interest rate locked in for the duration of your loan.

The downside to a long mortgage term is the significant chunk you’ll have to pay in interest. If you can afford to pay more per month, pay off your mortgage early and avoid a larger interest burden.

Adjustable-Rate Mortgages

Adjustable-rate mortgages have fluctuating interest rates. Keep in mind that choosing an ARM means your interest rate will increase and decrease as the market dictates. Your mortgage payments may change as often as monthly, but there are caps on just how high these changes can drive up your mortgage.

FHA Loans

If you are struggling with your savings efforts, have a lower income, or have a lower credit score, you may qualify for a Federal Housing Administration (FHA) loan. These loans have less stringent credit, down payment, and income requirements.

FHA loans do have lower dollar amount limits on loans they offer, and you will have to pay a higher mortgage insurance rate should you go this route.

USDA Loans

In rural areas, the USDA offers zero down payment loans. These loans are intended to help breathe life into rural areas with population increases through home ownership.

VA Loans

If you are a qualifying VA member, you may qualify for a VA loan. These loans offer nearly unparalleled terms with low-interest rates, as well as the option to roll closing costs into the total loan sum. No down payment is required.

Are there any special programs or incentives available?

Lenders may offer special programs and incentives for first-time home buyers. If you qualify, you may secure assistance with your down payment. Ask each lender which programs they offer, and if you qualify for any of them based on your circumstances.

What is the minimum down payment for the types of loans you offer?

If saving up for a 20% down payment feels like an impossible barrier to home ownership, take heart! This 20% figure is intended to help you avoid the costs of private mortgage insurance (PMI) in the event that you were to default on your loan.

However, once you’ve accrued 22% equity in your home, you can cancel your PMI.

Ask each lender about the down payment you’ll need to present at closing. The figures quoted will likely be a big factor in the type of mortgage you choose.

Are there any prepayment penalties?

If you have the ability to make higher mortgage payments than your loan requires, you may be able to pay off your loan early. This approach can save you a significant sum in interest. Prepayment penalties are relatively rare, but they are written into some mortgage agreements. Do ask each lender just in case.

What are the closing costs?

Each lender charges closing costs, which are processing fees charged for the work performed to arrange your loan. Common closing costs are origination fees, application and underwriting fees, title fees, recording fees, appraisal and inspection fees, title insurance, and attorney fees.

Your location, the size of your new home, and your down payment will each influence the amount you’ll pay in closing costs. In general, though, closing costs are anywhere from 3% - 6% of your loan’s total value.

What is your process for handling late or missed mortgage payments?

Of course, you don’t foresee yourself having any late or missed mortgage payments. Still, in case you encounter any surprise life events, it’s good to have an understanding of what will happen, and whether or not this lender will slowly escalate penalties.

The Takeaway

The process of shopping for a mortgage can be stressful and complex. However, because you’re armed with our list of the best questions to ask your home loan lender, you can be confident that you have the information you need to make the best choice.

Posted by Parks Real Estate on


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