What to Ask Before You Decide on a Mortgage Lender
Thinking of becoming a homeowner? Obtaining a mortgage is one of the first steps, but before you can get a loan, you’d obviously have to meet with several lenders and then decide on the most suitable one. When talking to any mortgage lender, here are some questions that you should definitely ask. Their answers will help you determine which loan is best for you.
What will make you qualify for the mortgage?
A mortgage lender uses several factors to determine if you qualify for a loan or not. These include your financial history, credit ratings, current income, savings, debt-to-income ratio and several other factors. Find out their weights and try getting a pre-approval, which also makes you appear as a serious homebuyer by the way.
What will be the mortgage interest rate?
A significant part of the mortgage payment is actually the interest on your loan, which is dependent on the offered rate. Mortgage interest rates are influenced by various factors such as the total loan amount, home location, down payment, mortgage term and credit scores. Even a point difference in the rates can drastically affect the total interest amount you pay over the entire term, so try getting a lower mortgage interest rate. Also understand the differences between annual percentage rate (APR) and the mortgage interest rate. Consider both of them when deciding.
What is the minimum amount for the down payment?
Generally, you have to pay 20% of the selling price as down payment. However, FHA loans only require a 3.5% down payment. Find out the required minimum, but try paying more than that because a bigger down payment means you can get a better mortgage interest rate.
Will the mortgage be fixed or adjustable?
Mortgages can either be based on a fixed rate or an adjustable rate, often referred to as ARM. For the former type, the interest rate is the same throughout the loan duration, whereas for the latter type, the rate is fixed for only a short period and then fluctuates after regular intervals.
Generally, most homebuyers prefer a fixed rate mortgage, but ARM may be a better choice in certain situations. For instance, you should choose ARM if you don’t intend to stay for too long in the home you’re buying. But when doing so, do find out the frequencies and intervals with which the rate will change.
What will be the fees?
Mortgage lenders may ask you to pay a one-time fee, referred to as mortgage points when you’re about to close the deal. The offered interest rate is reduced by around 1% for every point that you do pay. Some mortgage lenders may also offer you the option of not paying, but then, they’ll demand a higher interest rate.
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