Are you a first time home buyer? If you are, you probably have been doing some research into mortgages. Your research might be purely educational or it could be to find the best home loan. This article, on the other hand, will be a bit different. Here we will try to arm you with questions to ask so you are in the know when it comes to your mortgage. Now, keep in mind, this is not a comprehensive list of everything you need to know about your mortgage, but, before you accept a home loan, be sure that you have the answer to the following 10 questions to ensure that you have a clearer understanding as to what you are getting into.
What is the full amount of the loan?
This might seem like a strange question, but it is an important one to ask. You don’t want to borrow more than you need, so be sure that the loan amount is the same amount as what you will need. You won’t want to pay for more than you need, which should just be the amount of the house. However, there are also closing costs (which we will discuss later) that can add up. Normally you will just pay these upfront, but in situations where that might be difficult, you might be able to add them to the loan amount and just pay for them over time. Before considering this, talk to your lender and see if it is possible and advisable at your point and position.
What is the interest rate?
Interest rates are at the heart of any mortgage. For those of you who don’t know, the interest rate is essentially the amount it costs to borrow the money from the bank. You will want to know well before signing the papers on your home how much the interest rate is. If you know this in advance, you can shop around to other places to see if they can give you a lower rate. (The lower the rate the less you have to pay over time).
Also, once you know the interest rate, you can do your own research on the side to see what the normal interest rate is at the time. This can be a great bargaining tool, assuming you have good credit.
Is the rate fixed or adjustable?
So, once you have the interest rate and you are comfortable with it, ask if it is a fixed or adjustable rate (adjustable rates are usually abbreviated to ARM for adjustable rate mortgage). This will be a major player in whether you want to take the loan or not.
A fixed rate loan is one where the rate is locked in, it won’t change during the course of the loan. This is great if you like the stability, but it may mean getting a higher interest rate.
An ARM is one where the rate you pay can fluctuate at the whim of the market. This means that the interest rate could grow exponentially and result in much higher monthly payments than you had anticipated. However, an ARM will allow you to start off with a smaller interest rate (usually).
Can I lock in my interest rate?
This is only a factor if you are getting an ARM. With the adjustable rate you may have the option, later down the road, to lock in the interest rate (or rather, turn it into a fixed rate loan). This can be a great strategy if you want to enter the loan at a lower interest rate and lock it in at a normal amount. This can be tricky to pull off though, so make sure that 1) you can do that with your lender and 2) you know when the right time to do that is since they might not give you the best rate when you decide to lock it in.
What are the closing costs going to come to?
Closing costs are a little tricky. You will want to know how much to expect when the time comes to close. These are extra costs and fees that are applied to the transaction. Like a title transfer fee, inspection fees, and so forth. Like we said earlier, you might be able to roll these costs into the loan, but if you can’t, you will need to pay for them at the time of closing. It is best to have some money set aside (not your money you have set aside for your down payment) to cover the closing costs as they might be hefty.
In some cases you can ask the seller to cover a certain amount of the closing costs, though this might be difficult to convince them. Not to mention, some lenders might have restrictions on the seller’s contribution. Officially, when the seller pays for part of the closing costs it is called the sellers concession.
How much is the deposit?
Then there is the down payment. Most loans require that you pay some money upfront when you buy a home. This can be as low as 5% of the total cost, but can be as high as you want. The down payment has benefits for both the buyer and the lender. The more money that the buyer puts down at first, the smaller the loan amount will be and they less they will own on the home.
Lenders like down payments because, even if you default on your loan, they still have that money you put down. The higher the down payment, the more they get paid in cold hard cash.
How many points does this mortgage incur?
Points on a mortgage are a whole other beast for another day, but sufficient to say, they are something to watch out for. There are two kinds of points, points that go toward the lender (origination points) and points that can be used as a discount on your interest payable (discount points). You usually can’t control the origination points, however it may be negotiable with certain lenders. With discount points, you have complete control, however. You don’t have to buy discount points, but you will save yourself money in the long run if you do. Talk to your lender about the discount points and whether they will be a viable option for you.
What are the monthly payments?
Monthly payments are usually where people focus their attention when signing up for a mortgage. A person needs to know how much they will be required to pay each month to make sure that they can afford it. When trying to decide how much you can pay for make sure that the payment will be no more than 30% of your monthly income (net income). To calculate this, take your monthly net income, let’s say it is $3,000, and multiply it by 0.3. $3,000 X 0.3 = $900. So, in this scenario, you shouldn’t accept a loan that costs you more than $900 a month.
The monthly payment will also determine the term of the loan. If you want a lower payment, your loan will be for a longer period of time than had you opted for larger payments. This is because the longer the term of the loan the more time you have to pay it off and the amount is stretched further and vice versa for the larger payments.
How much will I be paying for this house by the end of the loan period?
This is a concept that you will have to understand if you are going to buy a home. Since you will have an interest payment and fees to add onto the actual amount you are borrowing, it is important to note how much any particular mortgage offer will cost at the end. It is not uncommon to have paid quite a bit more for a home when everything is all said and done due to the interest and closing costs.
Would you take this loan?
Lastly, there is this gem. “Would you take this loan?” This question, though it may not be answered truthfully every time, can give you a wealth of information. It is not a common question that lenders get, so usually their true feelings will show through for even a brief second. That way, if they answer truthfully or not, you will be able to tell whether it is a good deal or not. Now, this doesn’t work 100% of the time, but it is better to ask it than to not.
So, there you are. You are now more prepared to take those first steps into home-ownership. Despite the sea of confusion, you will be a little more aware of what all is going on. Be sure to listen to your real agent as well since they have seen many mortgages in their days. Especially if you have Hughes Group Agent on your side. The agents of the Hughes Group are trained and experienced and want to see you happy in the home of your dreams.