Important Questions to Ask When Applying For a Mortgage

1. What is the best interest rate and term you can give me and will I have to pay points?

• These are usually three of the most important questions to ask as you begin to shop for a mortgage.
•  “Interest Rate” is a rate which is paid for the use of money.  An interest rate is often expressed as an annual percentage of the principal.  It helps you determine how much interest you will pay on your loan.
• “Term” refers to the number of years that the loan will be paid out over.  For example, a 15 year loan term or a 30 year loan term are common loan terms.
•  “Points” are normally paid upfront at closing. Points “buy down” the interest rate, meaning the more points you pay , the lower the interest rate.  Each point is equal to 1% of the loan amount.  For example, 1 point on a $200,000.00 loan would equal $2000.00

1. Is this mortgage a fixed rate or an adjustable rate?

• A fixed rate loan is a loan that charges a set rate of interest that does not change throughout the life of the loan.  This allows the homeowner to budget the same amount of money each month throughout the loan term with no surprises or changes in payment.
• The interest for an adjustable rate mortgage varies over time.  It is common for the interest rate of a variable loan to initially be lower than a fixed rate loan but then the interest rate rises as time goes on and usually ends up much higher than the fixed rate loan.  Adjustable rates have a fixed rate feature at the beginning of the life of the loan for a determinable number of months or years before they start there adjustment.

1. What are your closing costs?

• Closing costs can include bank origination fees, points, appraisal fees, document prep fees, recording fees, taxes and mortgage and title insurance.

1. What is a good faith estimate and when will you provide me with one?

• You should receive a good faith estimate of all your anticipated fees and closing costs within three days after applying for a loan, although some mortgage providers will provide you with an estimate prior to finalizing your application.

1. How can I save money on my closing costs?

• Closing costs are expensive, but there are a few ways you can attempt to lower them.  Secure a no-point loan.  This may not be an option for bad or average credit applicants and may not always guarantee the lowest interest rate but it will lower your initial costs on closing day.  Don’t escrow.  Some banks require you to escrow for taxes and insurance but not all of them.  By not escrowing your taxes and insurance upfront you can save yourself hundreds and even thousands of dollars at closing.  But be aware, you will be responsible to pay your own taxes in full when they become due from your respective town and insurance company.

1. How long can I expect this process take from application to closing date?

• Average loan processing time is 30-45 days.  Please be aware that these times may vary based on an applicant’s unique credit or employment history. If you are purchasing a home, make sure you coordinate the dates on your purchase agreement with your mortgage lender.

1. Is there a prepayment penalty clause in my loan?

• A prepayment penalty is a penalty you pay to the bank if you sell, refinance or pay off your home before a certain number of years.  Be sure to ask: does my loan have a prepayment penalty, how much is the penalty and what are the terms of the prepayment penalty.

1. What documents will I need to apply for a loan?

• This is an important question to ask at the beginning of your application process.  With new government regulations and bank practices, lenders are asking for more and more documentation of your financial and credit history.  If you are not properly prepared to provide everything that the lender is requesting of you, it can hold up your application process for days or even weeks.
• For a complete checklist of commonly requested documents for your personal use, please email your request and I would be happy to send you a free mortgage checklist.

1. Will you lock in my interest rate?

• Interest rates can fluctuate on a daily basis.  If you are satisfied with the current rate being offered to you, ask if the lender will lock in your rate.  Ask if there is a fee to lock in your rate?  It is necessary to be aware that the rate a lender is offering you can change during the time that your loan is being processed if it’s not locked in?  Many people assume their rate is locked when its not.

1. Will I have to pay Mortgage Insurance and/or Title Insurance?

You may be required to pay (PMI) or Private Mortgage Insurance if you do not put down 20% on your new home purchase or if you do not have 20% equity in your home when you refinance.

• You will be required to purchase Title Insurance if you are buying a home or refinancing in Connecticut.
• For a more detailed explanation of Mortgage Insurance and Title Insurance, please refer to my article entitled “Understanding Mortgage and Title Insurance “ which can be found on this website.

If you would like a list of experience and qualified mortgage lenders in your area, please email me your request and I would be happy to send them out to you.