When it comes to getting a mortgage they say there are no stupid questions..
Well, that’s not necessarily true.
But, there are mortgage questions you’d be stupid not to ask.
Here are the 11 mortgage questions you should be asking your lender…
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1. What is my mortgage rate?
This is a common question but some people fail to find out. Your mortgage rate is so important. A difference in a fourth of one percentage point can cost you thousands of dollars a year.
Make sure you find out the interest rate on your mortgage. You don’t have to settle with whatever the rate is that your loan officer quotes you. Interest rates ARE most definitely negotiable.
2. How much are closing costs?
Every mortgage loan will come with closing costs. Closing costs are fees charged by the lender for originating the mortgage for you. These fees will vary depending on the type of loan you’re getting and the lender. Make sure you know how much these costs are. Like with interest rates, closing costs are negotiable as well.
3. Which type of mortgage do I have?
There are several different types of mortgage programs. From FHA to Conventional loans. 100% financing loans and mortgages that require a 20% down payment. You need to know which type of mortgage you are getting. Sometimes a loan officer will put you in a mortgage program thats not the best fit for you.
4. What documents do I need to have?
Most lenders all require the same mortgage documents. This consists of W2’s, Tax Returns, pay stubs, etc. However, a certain lender may require different documents, or more documents, like 3 years of tax returns or 6 months of bank statements. Make sure you know before hand exactly what kids of documents your lender requires.
5. How many origination and discount points will I pay?
Lenders charge origination and discount points in certain cases. A point is equal to a full percentage point.
1 point = 1%
For example: If your loan amount is $200,000 and you are being charged 1 point. The fee will be $2,000.
- Origination points – A fee charged by the lender for originating the loan.
- Discount points – A discount point is a way to reduce the interest rate on your loan by pre-paying interest up-front.
6. When should we lock-in the interest rate?
With interest rates jumping all over the place on a daily basis choosing the right time to lock-in that rate is key. An experienced loan officer will be knowledgable about rates and will have a good idea when the best time to lock in a rate is.
7. Are there any other fees or charges I should be aware about?
You should make sure you know every single penny that is being charged by your lender. The loan estimate (LE) has taken the place of good faith estimates (GFE). In the loan estimate it should have a clear breakdown of the fees associated with your mortgage. You should make sure that nothing is left out.
8. Is there any way to get the monthly payment lower?
There is nothing wrong with asking your loan officer for a lower payment. There is usually some wiggle room in the numbers they can adjust to get you a lower payment. You just have to ask. Another way to negotiate your rate down is by shopping lenders. If another lender quotes you a lower rate you can go back to your lender and ask them to match it.
9. Is there anything that could possibly cause a closing delay?
Delays happen. Just because you have a certain closing day doesn’t mean if you aren’t able to close by that day the deal is off. Sellers understand that things come up. However, this is the last thing you, or they want to see happen. If the loan officer sees certain things that cause delays, you need to know about it so you can be prepared.
10. What are my payments with a fixed-rate mortgage and adjustable-rate mortgage?
There are several different terms available for a mortgage loan. The 30 year fixed-rate mortgage is the most commonly used term. With a fixed-rate loan your monthly payment and interest rate will never change.
The 15 year fixed-rate mortgage is also available and will have a lower mortgage rate. However, the monthly payments will be higher, more of the payment goes towards the principle balance, saving you tens of thousands in interest.
An adjustable-rate mortgage loan has the lower initial interest rate. Typically an ARM (adjustable;e-rate mortgage) is a 5/1 ARM. The first 5 years of the mortgage will have a low interest rate, after the 5 year period the rate goes up annually. This option is good for borrowers planning on staying in the home for less than 5 years.
11. Is there anything I can do to increase my credit score to get a better rate?
Since your interest rate is tied to your credit score. It makes sense you should do everything possible to get your credit score as high as possible. Your lender may have some tools that can read your report and give you an idea of what you can do to increase your credit score. This is a question you need to ask your loan officer.
A common thing that will improve most peoples credit score, is paying down credit card balances. Your credit utilization ratio is your credit card balance compared to the card limit. This ratio makes up 30% of your FICO score. It’s a big deal. Make sure you have your balances paid as far down as possible, at least below 15% of the limit.
12. Will escrow be included in my payment?
Escrow is a separate account in which you pay monthly that goes towards property taxes and insurance. You can either pay it out of pocket or set up escrow. Some mortgages will require you do escrow.
This is beneficial to the borrower as well so they don’t have a large bill at the end of year they’re not prepared to pay.
13. How much is my mortgage insurance premium?
Unless you’re getting a VA loan or are putting 20% down, you will be required to carrying mortgage insurance. On Government loans, such as FHA and USDA loans it is called mortgage insurance premium (MIP).
MIP on FHA loans will depend on how much the loan amount is and how much you use as a down payment. View the FHA mortgage insurance premium chart.
If you’re getting a conventional loan it’s call private mortgage insurance (PMI). Conventional loans have a lower mortgage insurance premium than FHA at just 0.50%. The fee will be included into your monthly payment.
This is not an all inclusive list. You should be asking your lender lots of questions.
It’s good to know if you’re working with a mortgage broker or mortgage lender. A mortgage broker acts as a go-between between you and the lender. A mortgage lender is the financial institution lending the funds.
If you’re a first-time homebuyer you should be asking all of these questions. There are many mistakes made by first-time buyers you can avoid by asking these mortgage questions.
If you are unsure about anything make sure you find the answer. If your loan officer starts to act annoyed, thats a good sign it may be time to find a new lender.
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Randall has over 15 years of experience in the mortgage and credit industries. He spends a chunk of time helping consumers understand their credit, advise them on how to increase their credit, and lending his mortgage expertise to help them find the right type of loan. Randall lives in Dallas, Texas with his two sons.