Homebuyers, especially first-time home buyers, focus a lot on finding the right home. Home buyers look for the right location, and well-built, comfortable houses. But, you’ll also need the right mortgage program. You as a home buyer, probably have plenty of mortgage questions you’d like answered.
- Is my credit score good enough?
- How much down-payment can I pay?
- What kind of loan is good for you?
- What are the interest rates?
- Are there discount points and originiation fees?
- Does the lender allow a loan rate lock?
- What’s the closing cost?
- How long will it take to close the mortgage loan?
- Are there any prepayment penalities?
- Have you gone through multiple lenders?
The process of getting a mortgage might seem tedious to first-time home buyers. But investing some time in finding the best mortgage can save you a lot of money in the long run. Lenders are your go-to to get a mortgage loan. These are a few mortgage questions you need to ask yourself and your lender:
Answering Your Mortgage Questions
1. Is My Credit Score Good Enough?
The kind of mortgage you land depends heavily on your credit score. You’ll be a safe borrower if your credit score is good. A very good credit score will give you more power in negotiations. You will be able to get a better fixed-rate mortgage on your adjustable-rate mortgage.
2. How Much Down-Payment Can I Pay?
It is possible to pay a 3.5% down payment to get a mortgage, considering you have a good credit score. But in most cases, if you are paying a down payment below 20%, you might have to pay private mortgage insurance as well. When you are getting a mortgage loan, it’s better to put down 20% down payment, than pay private mortgage insurance that is usually 1% of the total mortgage.
3. What Kind of Loan is Good for You?
There are many types of loans available for home buyers. First-time home buyers should especially do their homework and understand the different types of loans, which ones they qualify for, and which will be best for them. These include: fixed-rate mortgage loans, adjustable-rate loans, and special VA loans, etc.
A low-interest fixed-rate loan would be best, ideally. But in some cases, adjustable-rate loans can turn out to be cheaper in the long run.
4. What are the Interest Rates?
Understanding interest rates is important for all mortgage types. For a fixed-rate mortgage, the interest will stay the same for the entire term of the loan, usually 20 to 30 years. For variable rate, your monthly or yearly mortgage payment varies with the interest. This is suitable if the borrower is sure that the interest rate will fall over time, along with their payments.
An adjustable mortgage rate is a combination of both fixed and variable rate mortgages, where the borrower pays a fixed interest rate for the first few years than a variable interest rate for the rest of the loan’s term.
5. Are there Discount Points and Origination Fee?
Some lenders charge you an upfront mortgage origination fee. The compensation for processing the mortgage loan is usually between 0.5% and 1% of the value of the loan. Discount points can be earned by paying a cash amount. 1% of the total loan earns you one point. These points are beside the down payment and can help you negotiate a lower interest rate from your lender.
6. Does the Lender Allow a Loan Rate Lock?
For variable-rate and adjustable-rate mortgages, sometimes borrowers and lenders can make an arrangement. To lock the interest rates for a specific amount of time. It may require payment (0 to 1 point). These locks are sometimes beneficial for the borrower if you can get a lock for a time period when the interest rate got higher. But in the case of interest getting lower, the lock benefits the lender.
7. What’s the Closing Cost?
There are a number of steps involved starting the mortgage process, to closing the deal, then transferring ownership from home buyers to you. There are also a number of third parties. The closing cost can include credit report charges, escrow, pest inspection reports, etc.
The lender is required by law to provide the estimated closing cost to the borrower. The number won’t be exactly the same at the time of actually closing the deal, but it won’t vary a lot.
8. How Long Will It Take to Close the Mortgage Loan?
The typical time frame for this is between 21 to 45 days. However, if you aren’t keeping your lender in the loop, or providing them with the updated documents, your loan can be delayed. Too much delay may result in having to pay some kind of penalty to the seller.
9. Are There Any Prepayment Penalties?
If you plan on prepaying part, or all of your mortgage payment at once, you might incur a prepayment penalty. While not allowed in all states, in the states where it is allowed the lender will charge you a prepayment.
These penalties are applied to cut the losses of the lender as they would have gained more from interest over time.
10.Have you gone Through Multiple Lenders?
This is one of the most important questions you should ask yourself. Once you start with the process of getting a mortgage, don’t lock the first lender. If your credit score is good, a lot of lenders will be happy to finance your home. But their terms, mortgage rates, closing costs and loan processing time might greatly vary. So make sure you meet with at least a few vendors, evaluate your options, and then pick the best lender for your home purchase.
The Bottom Line
How good of a mortgage you can lock depends a lot on you. Your credit score, how much savings you have for the down payment, are you buying at a good time, etc. We hope these answers to your mortgage questions helped cleared things up for you.
If you do your homework right, improve your credit score and have a large enough sum saved up for a 20% down payment and a few discount points, you might be able to find a great deal. You can contact us and our agents to learn more.