When applying for a mortgage, we always tend to feel that we are at the mercy of the lender. More often than not we feel as though you need to take what is offered rather than digging deep to get the best available deal possible.
Asking your lender questions about the loan you are about to apply for is just as important as going to the doctor and asking questions about your health care. While the lender may be the expert, they are not the final say on your loan. Your mortgage lender is there to provide you with the best information available about what you qualify for, and it is their job to get you into a mortgage you can afford. After all, you will have this mortgage for a substantial period.
So when you sit down with your mortgage lender, and before you sign on the dotted line, don’t be afraid to ask your lender the following questions.
What type of loans do you offer? How do I qualify for each?
You mortgage lender has a very short period to get to know you before they start working on processing your loan. It is impossible for them to get to know every aspect of your personal life. If you ask about loans and the qualifications for each, there may be better and more affordable options that only you would know you qualify for.
What is the current interest rate? What interest rate are you offering me? What are my options for getting a better price?
You should always know what the lowest interest rate available at the time. If you are being offered a rate that is much higher than the current rate you need to know why your loan is costing you so much money. Even if you are only a half a percent more than the current or prime rate you need to know what your options are for buying down your interest rate or if taking a bit more time to pay off a few bills could get you past the threshold to earn a better rate. While you may pay more to get the loan initially, you could save thousands of dollars over the term of the loan.
Can you estimate and explain my potential closing costs?
You should always know how much you have to pay for your closing costs. Within the closing costs are a lot of fees that may not even apply to you. Many mortgage companies have a standard package of closing costs. By knowing as much as possible about the costs included there may be ways you can save some money. For example, many times a home that being sold would have had a recent appraisal. Appraisals have an expectancy of 30 days and a cost of up to $500.00. Why pay for another appraisal if the home has one that is current. There are a lot of ways to save money in your closing costs if you are informed.
As my mortgage lender, how much are you expected to earn in fees on the purchase of my mortgage?
Never be afraid to ask how much your bank will take from you in the way of fees. If the loan is with a major bank, many times you may be able to get the lender to drop some of those fees because of the amount of money they are expected to make over the course of the loan. This will save you a lot of out of pocket money at the onset of your loan or possibly give you money to purchase down on your interest rate.
Do I have to pay private mortgage insurance (PMI)?
PMI insurance is required on home loans where less than 20% has been paid as a down and where there is less than 20% equity on a home that has been refinanced. This is insurance that is paid to give the lender their money if you default on your loan. This is money that does not go to the principal of your loan or to pay down the balance of your loan and can increase you payment by almost $200.00 a month. If you qualify for a federally insured product or a product that already has this type of insurance built in, you could end up spending money unnecessarily.
Is there a prepay penalty on my loan?
A prepay penalty is a fee that you can be charged if you terminate your loan with your lender usually within the first 2 – 5 years that you have the loan. Unexpected things can happen, and you would not want to lose the equity you build in your home if for some reason you have to move or relocate.
Will you be selling my loan?
If you choose to work with a mortgage company as opposed to a major bank, more often than not, your loan will be sold. While initially it may not make a difference, in the long run, it could have significant changes in the terms and servicing of your loan. An example may be a change in grace periods from one lender to another. It pays to know ahead of time.