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Most buyers prequalify with their chosen lender before making an offer on a property. Once your offer is accepted and the contract is signed, it’s time to complete your mortgage application package and choose the right home financing product. These questions will help you make an informed decision about your mortgage.
1. What mortgage products do you offer? Since the real estate crisis, most lenders offer three main types of mortgages: Fixed rate mortgages of 15, 20, and 30-year terms, adjustable-rate mortgages, or ARMs, where the interest rate fluctuates over the life of the loan or hybrids that combine a period of fixed rate mortgage, typically from three to ten years, with the remaining years at an adjustable rate.
2. Which mortgage product do you recommend for me? Ask your lender to discuss the advantages and disadvantages of available mortgage loans.
Image by Pictures of Money / Flickr
3. Are rates, terms, fees, and closing costs negotiable? Can I use discount points to buy down my interest rate? A point costs 1% of the mortgage amount, paid upfront, in exchange for a reduction of the interest rate over the life of the loan. In some cases, buying down your interest rate can save tens of thousands of dollars over the life of your loan.
4. What is your policy regarding private mortgage insurance (PMI), and how much does it cost? PMI is usually required if your mortgage amount is more than 80% of the value of the home. Most lenders will let you drop PMI once you’ve built up enough equity, but be sure to ask your lender’s policy.
5. Will you service the mortgage yourself, or is it contracted out to a third party?
6. What are the escrow requirements for my loan? Most lenders pay your property taxes and homeowner’s insurance premiums using money collected each month in addition to the principal and interest payments and held in an escrow account until the tax and insurance payments are due.
7. How long is the lock-in period? Will my rate go down if interest rates drop during that time? During the lock-in period, the lender will honor the quoted interest rate even if rates go up.
8. How much is the penalty if I should need to extend the rate lock?
9. Do you charge a penalty if I prepay the loan? If you plan to sell your home in three or four years, it’s important to understand the lender’s prepayment policy.
10. How long will the loan process take? What is your average time to close a loan?