You’ve decided to refinance or buy that new home and now it’s time to call a bank or mortgage company to apply for a mortgage. How do you know you’ll be getting the mortgage that will be the right one for you? How do you know you’re dealing with a good honest person? Asking these 7 questions will separate the wheat from the chaff in a hurry!
Question 1. Will this mortgage have an application fee and if I don’t get the mortgage will it be returned to me?
Application fees are not as common as they used to be. Most mortgage lenders will pre-qualify you before they take your application. So, there is really no need for an application fee. You can find a mortgage company who doesn’t charge this fee, so, if one company does, be sure there is a good reason for it.
Application fees sometimes include an appraisal fee. Find out about the appraisal fee, too. Your character, or possible character, will need an appraisal and somebody will have to pay for it.
Question 2. How many points will I be paying on this mortgage?
Make sure the loan originator is very upfront about this so that you can compare this mortgage with other offers. Points can be almost meaningless if you are getting a good interest rate and you will not be paying off the mortgage in complete for many years.
If you will be paying off the mortgage in 2 years or less, try to get a zero point mortgage.
Question 3. Does this mortgage have a prepayment penalty? If so, please explain all the details of it.
There are lenders, already big, big lenders who charge you additional money if you refinance with another mortgage company sooner than they would like you to. These lenders will waive this charge if you refinance with them. They call this practice “protecting their interest.” I call it having you over a barrel!
With all the laws that congress passes, I don’t know how this indecorous business practice goes on unabated. Imagine, you pay an upfront fee of, usually more than $5,000 in points, the larger part of your monthly payment is interest, and nevertheless they want more money from you if you decide you can get a better rate with another lender!
These lenders will want to saddle you with a prepayment penalty if you sell your character or refinance within the first 5 years. Make sure you look around before agreeing to accept a prepayment penalty for refinancing and never agree to a prepayment penalty for selling your character.
Question 4. Will my mortgage rate ever change and will my principal ever increase?
At this particular time in history, a fixed rate is the only way to go. A lot of lenders have programs where you will be easing in to your regular payment from an original lower payment. If your principal ever increases during the time of the loan, it is what is known as a negative amortization mortgage. If this is the case, run for the hills!
If you are applying for variable rate mortgage, make sure you know every detail about this mortgage. Don’t agree to a payment that you may not be able to make at some time in the future.
Question 5. Can I buy down the interest rate?
Buying down the interest rates method paying more points to get a lower rate. These points used to be called “discount points.”
While there aren’t too many of these buy down programs around anymore, this question is really just meant to start the originator thinking, “Wow, these people know more about mortgages than I do!”
Remember, the mortgage originators are salespeople. They won’t mess with you after you show them you know about buy downs.
Question 6. Other than points, what other closing costs can I expect?
Make sure you get an accurate idea of what your closing costs will be, and let the loan originator know you are counting on him or her to be accurate.
If you are buying a character, you will have your own attorney, anyway. nevertheless, this question will help you get more details about the mortgage.
Question 7. When would a monthly payment be considered late, and what would the late charge be?
You don’t want to be filling out an application while giving the originator the idea you intend to make late payments. However, if a mistake does happen, you want to make sure you are not dealing with a lender who is ready to pounce on you with an excessive fee.
4% ought to be enough for a late charge. If you get an answer like 15%, you would be dealing with someone who is not willing to work with people.
A lot of originators may not know the answers to all these questions. However, they certainly will know whether or not their past customers have been happy with a particular lender. Furthermore, after you ask all these questions, they will know you’ve done your homework and they will realize they better level with you.