Applying for a mortgage is a serious step in your home buying process. A lot of home buyers find the application process confusing and stressful. Having a clear understanding of exactly what you’re applying for and exactly how your application will be processed can give you peace of mind during this important time.
Before submitting your mortgage application, take a few minutes to conduct a Q & A with your mortgage company. Most mortgage applicants aren’t fluent in “legalese,” so don’t feel silly for asking a lot of questions. Here’s a few to get you started…
What’s the interest rate?
Your mortgage rate will inevitably affect your monthly payments, so understanding it is crucial. What percentage is it? Is it a fixed rate, adjustable rate or hybrid? If it is an ARM or hybrid, at what point will the rate change?
What are the closing costs?
Closing costs can include any number of fees associated with the filing, processing and sale of the home. Have your lender outline each expense, so you know exactly what you’re paying for. Ask for a Good Faith Estimate and ask the lender or broker to explain the different line items.
Are there prepayment penalties?
Some mortgages have hidden language that punish borrowers for making prepayments on their loan. If you plan to aggressively pay down your mortgage, you need to make sure prepayment penalties are not included in the terms of your agreement.
When can I lock in a low rate?
Interest rates can change quickly, so you’ll want to lock in a low rate as soon as possible. That being said, there’s nothing wrong with shopping around a little before choosing a lender.
Will I need PMI?
Depending on the type of loan you’re applying for, you may be required to carry private mortgage insurance. Generally, PMI is required on loans that are more than 80% of the home value. In other words, if you make less than a 20% down payment, you could be forced to pay PMI. There are a few exceptions, however. PMI cannot be applied to FHA or VA loans, despite the fact that they require little to know money down.
As you dialogue with your lender, you’ll probably think up more questions. Feel free to ask away, and don’t hesitate to call your mortgage company if you think of more questions later.
We always recommend that you consult with a licensed mortgage professional serving your state before making any home financing decisions.