As a homebuyer, you have a lot of decisions to make. What neighborhood should your family move to? Which home should you buy? And what features should it have?
Equally important, however, is the mortgage you choose. Before shaking hands on a deal, ask your lender these questions first:
What mortgage should I get?
A good mortgage lender should explain all the options available to you and recommend the one that best suits your circumstances. In general, mortgages can be classified as:
- Fixed-rate: Your interest rate never changes, meaning your mortgage bill remains the same from the very first to the very last payment.
- Variable-rate: This mortgage has a lower interest rate than a fixed-rate one, but it may increase or decrease depending on how the real estate market performs.
- Interest-only: You’ll pay only the interest at first, but you’ll have to make a lump-sum “balloon payment” for the entire balance at a specified time.
- Negative amortization: With this option, your lender agrees to defer a portion of your interest for a period of time.
What is the annual percentage rate?
Your mortgage will come with two different rates. The first is the standard interest rate, which tells you how much you’ll pay on top of the principal amount you borrowed. The annual percentage rate (APR), on the other hand, factors in the standard interest rate, tax-deductible discount points, and lender fees. While the APR will be higher than your standard interest rate, it’s a more accurate reflection of the true costs of borrowing money.
How big a down payment is required?
Ideally, you should have at least a 20% down payment set aside. Having a sizable down payment increases your chances of getting approved for a mortgage and it will save you money in the long run (the less money you borrow, the less interest you’ll have to pay). That said, you can get a mortgage with just a 3% down payment if you have a good credit score, but you’ll have to take out private mortgage insurance. You’ll have to pay this additional cost until you reach the ideal 80-20 loan-to-value ratio.
What are the associated costs?
When you apply for a mortgage, you might be surprised to find a list of services not directly related to financing your home. These items are part of the lender’s due diligence, in which they verify your creditworthiness and the viability of the property you wish to buy. These might include fees for things like credit reports, appraisals, title search, escrow costs, and the like. Ask your mortgage lender about these related costs before signing anything to avoid sticker shock. Request a loan estimate form after completing your mortgage application—it should include an itemized list of all these fees.
How soon can I get my loan approved?
Homes for sale in Sandy Springs, GA are in high demand, and who clinches the property often comes down to who gets financing first. After all, you must indicate a closing date on the purchase contract and your mortgage should be approved by then. It typically takes 43 days to get a home loan approved, but you can secure pre-approval first to boost your chances of scoring your dream home as you finalize your mortgage.
How much will my total monthly payment be?
Knowing your monthly mortgage bill makes it easier to budget your household’s finances. At the bare minimum, it will include your principal and interest payments. However, most lenders will require you to set up an escrow account where you will make monthly contributions towards your property taxes, homeowners insurance, and private mortgage insurance. If your neighborhood collects a homeowners association fee, factor that into the final tally as well. Use the acronym PITIA to help you remember what comprises your monthly housing payments: Principal, Interest, Taxes, Insurance, Association fees.
Are there prepayment penalties?
Thinking of paying a little more than your stated monthly mortgage bill? Your lender might penalize you for doing so. The earlier you pay off your mortgage, the lower the interest payments your lender collects, so they apply a prepayment penalty to make up for the loss. Occasionally making extra payments won’t trigger the penalty, but consistently doing so will. Before signing on for a mortgage, ask your lender if they levy such a penalty. If you’re really keen on putting any extra cash towards your mortgage, choose a home loan that has no prepayment penalty instead.