Mortgage Shopping Six Questions You Need To Ask

Mortgage Shopping: Six Questions you​ Need to​ Ask
Obtaining a​ new mortgage has become increasingly difficult in​ recent months .​
Whether you're trying to​ purchase a​ new property or​ refinance your existing home,​ loan requirements have become stricter in​ the​ face of​ declining home values,​ falling buyer demand,​ and financial market concerns.
Keeping on​ top of​ the​ ever-changing mortgage market can be difficult .​
So educating yourself is​ critical .​
Most people shop around to​ find the​ best deal on​ a​ home loan .​
But for many the​ process is​ of​ limited use because they don't know what to​ ask .​
Before embarking down the​ path to​ a​ new mortgage,​ take the​ time to​ identify the​ questions you'll need to​ ask .​
These questions will help your determine whether the​ loan is​ right for your individual situation .​
Just as​ importantly,​ they can provide you​ with significant insight into the​ mortgage professional's intentions and credibility.
1 .​
What kind of​ mortgage is​ this?
One of​ the​ most fundamental but least often asked questions relates to​ the​ type of​ mortgage you​ are getting .​
There are essentially two kinds of​ mortgages: fixed rate and adjustable rate .​
Fixed rate mortgages require you​ to​ pay the​ same monthly payment over the​ entire life of​ the​ loan .​
Adjustable rate mortgage payments are normally frozen for between two and five years,​ but then adjust according to​ market forces .​
Thus,​ fixed rate loans can be slightly more expensive,​ but they offer more stability to​ your budget .​
And don't just ask this question,​ but get documentation proving the​ response you​ receive .​
Sadly there have been a​ number of​ cases in​ the​ past two years of​ borrowers being told their mortgage was fixed when really it​ wasn't.
2 .​
How much money will I​ need spend to​ close this loan?
Whether you're purchasing a​ new home or​ refinancing your existing one,​ try to​ find out how much money you​ will need to​ pay to​ close the​ loan .​
This is​ almost always a​ rough estimate,​ but it​ will give you​ an​ idea of​ what to​ expect .​
Sometimes your lender or​ broker can roll all the​ extra expenses into the​ loan itself,​ but even in​ this scenario there's usually some out-of-pocket cost .​
To be safe,​ if​ the​ cost is​ zero set aside a​ few thousand dollars,​ or​ if​ the​ cost you​ are told is​ more than zero multiply it​ by 10 percent.
3 .​
How much home can I​ realistically afford?
This is​ a​ critical question for buyers because there is​ a​ strong temptation to​ purchase the​ biggest,​ most luxurious home available .​
But look realistically at​ your lifestyle,​ and at​ where you'd be content to​ live .​
Ask your broker or​ lender how much of​ a​ loan they can approve you​ for,​ and then stay under that figure .​
Never try to​ persuade them to​ approve you​ for a​ bigger loan amount,​ and beware if​ they offer to​ do just that.
4 .​
How long does it​ normally take for your loans to​ close?
This can be a​ good indication of​ how much time you​ can expect to​ wait before your new mortgage is​ set in​ stone,​ and how honest the​ broker or​ lender is​ .​
The answer to​ this question is​ normally 15 to​ 25 business days .​
Any response less than 10 business days should be treated with suspicion .​
And regardless of​ their response,​ be prepared for the​ process to​ take at​ least 25 business days .​
While a​ home loan can be closed in​ under two weeks,​ assuming that it​ will be can create unnecessary stress for you.
5 .​
is​ there a​ prepayment penalty associated with this mortgage?
In recent years lenders often slapped a​ prepayment penalty on​ a​ mortgage to​ discourage the​ borrower from refinancing away to​ a​ more attractive home loan several months down the​ road .​
While times are changing and prepayment penalties are becoming a​ less common,​ they are still used .​
And you​ need to​ know if​ you​ will have one tied to​ your mortgage.
6 .​
What is​ the​ financial index and margin associated with the​ mortgage?
This question is​ specifically relevant to​ adjustable-rate mortgages,​ also known as​ ARMs .​
The index and margin combine to​ determine your mortgage interest rates once any introductory rates have expired,​ and therefore how much your new or​ adjusted monthly payments will be .​
For example,​ a​ 5% margin added to​ a​ 6 Month LIBOR rate of​ 5.3% will equate to​ an​ overall interest rate of​ 10.3% .​
Margins for people with good credit are usually around 2.5% to​ 3.5% .​
Anything more can be a​ sign you're getting conned .​
If your broker or​ loan officer seems flustered by this question or​ tells you​ it​ is​ too complicated for you​ to​ understand,​ chances are they're not confident enough to​ answer you,​ or​ they have something to​ hide.
These questions are a​ good starting point .​
But don't be afraid to​ read up on​ mortgages,​ and learn as​ much as​ you​ can before you​ approach this daunting and nuanced topic .​
Shop around by all means,​ but don't shop blind .​
Ask questions,​ build your knowledge,​ and have confidence in​ your analytical abilities.

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