Buying a home may be fun, but it’s also a big financial decision. Whether you’re buying a new home or refinancing, choosing a good mortgage is the first crucial aspect of the process. Therefore, it helps to do your research and ask different questions when looking for a mortgage lender. Not all lenders are the same, thus it’s essential to fully understand every aspect before applying for a mortgage.
If you’re looking to refinance or buy a home, this post is for you. It has put together a list of the most important questions to ask and understand before applying for a mortgage. If you’re a veteran, then you’re lucky since platforms like Security America Mortgage offer VA loans to individuals who have been in the military.
Good lenders will first gather more information about you before displaying the loan options. You won’t be comfortable if a doctor suggests surgery before examining your medical condition. Therefore, go for the lender who asks for all the essential details before recommending a specific type of mortgage. Lenders can help you navigate and identify the best loan type, including VA, USDA, conventional, and FHA loans, among others.
Conventional loans are mortgage loans that government programs don't back. You need a good credit score of 620 or higher to qualify and a down payment of 20% to avoid paying the private mortgage insurance.
The Federal Housing Administration backs FHA loans. Unlike conventional loans, the down payment of FHA loans is as low as 3.5%, and credit scores are as low as 500.
VA loans are mortgage loans for veterans who’ve previously been in the military. They require no down payment, credit scores, or mortgage insurance. If you want to apply for this type of loan, you may check out sites like securityamericamortgage.com.
The U.S. Department of Agriculture backs USDA loans and offers mortgage loans to help low- and moderate-income families in rural areas. One of the benefits of USDA loans is that there's no down payment, and terms can extend over 30 years.
Repayment terms can significantly affect the cost of your loan repayment. Therefore, ask the lender what they offer before proceeding with the application. Different loan repayment terms are fixed-rate, interest-only, adjustable-rate, and negative amortization loans. Ask the lender to explain the pros and cons of each and how each would fit your circumstances.
A fixed-rate mortgage has a set interest rate that doesn’t change until you finish making payments. The interest rate for adjustable mortgages fluctuates depending on the market. An interest-only loan is a loan where you only pay the interest; in the meantime, the principal remains, but you’ll have to pay all of it at some point. A negative amortization loan defers some interest for a certain period.
A mortgage has two rates—the base interest rate for the mortgage and the annual percentage rate (APR). They obtain the annual percentage rate through a lengthy calculation that entails adding the fees and total interest to pay and then dividing by the loan’s term. The APR is higher if the interest rate and the fees link with the loan. You should note that the larger the difference between the APR and the base interest rate, the more lenders charge fees. Your lender should explain all these factors and how your interest rate is obtained.
Experts suggest that to get the best terms and rates for your mortgage, try to pay a down payment of at least 20% of the buying price. Although they may not deny a loan for paying a smaller down payment, you’ll need to pay private mortgage insurance (PMI) if your down payment is less than 20%. Your down payment can affect other variables, like closing costs, interest rates, and monthly payment terms. Ask your lender about the minimum down payment for your loan and any cost-saving assistance program that’ll help you choose what’s right for you.
Inquire about all fees that come with buying a house, especially the closing costs. These costs include lender fees, origination fees, appraisal fees, title policy fees, recording fees, pest inspection reports, escrow, and taxes.
The law requires lenders to provide an estimate of all the fees, which is usually called the loan estimate. This is in a document once the application is complete, and should contain the borrower’s name, property address, social security number, the value of the property, and the loan amount. But, you should ask about the cost estimates before even applying for the mortgage.
Applying for a mortgage is a huge financial decision. Hopefully, this post will help you know the right questions to ask when looking for the right mortgage. It’s also a good idea to consult a financial advisor or a home loan expert before settling for a mortgage.