When buying a home, there are a few questions that you should make sure to ask your lender.
1. What is my interest rate? This is important because the interest rate determines what the principal and interest portion of your mortgage payment will be. Make sure that you discuss interest rates up front so that you know what your payment will be at the end of escrow. If they don’t disclose the rate right away, you may end up with a higher payment than you thought you were going to get.
2. What is my monthly mortgage payment? Your mortgage payment includes the principal, interest rate, taxes, and insurance (PITI). Some lenders may just tell you the principal and interest payment, but you need to know the total payment. In San Diego, property tax rates are around 1.25%, so take that into consideration, as well as insurance payments.
3. Is my interest rate fixed or adjustable? If you have a fixed interest rate, your payment will be the same for the term of the loan. Adjustable rate mortgages got a lot of people in trouble in 2007 because the rates would change and their mortgage payments would go up. In order to have a consistent mortgage payment, get a fixed rate.
4. What fees are involved in the transaction? Whether you are buying a home or refinancing a home, you should ask if the transaction involves any points being charged to you. Some lenders charge 1% of the loan amount. If you are buying a $400,000 home and they charge you 1% up front, then you are paying $4,000 just to do the loan. If you are buying a house, those fees are included in your closing costs.
5. Does the loan have a prepayment penalty? You will be stuck with that loan for however long the penalty term is. The prepayment penalty can be between 3% to 5%. If you buy a $300,000 property and your mortgage has a prepayment penalty, that will cost you between $9,000 to $15,000 to get out of that loan. Make sure you don’t have any prepayment penalties.
6. What is the minimum required down payment? The down payment amount is dictated by what type of loan you get. Conventional loans require 5% to 20%. FHA loans have a minimum requirement of 3.5%. It’s important that you go into the transaction knowing how much of a down payment you will need.
7. Does the loan have private mortgage insurance? This is an additional payment on top of PITI. Call me if you have any more questions about private mortgage insurance. It’s a bit complicated, and I’ll be able to go more in-depth about this on the phone.
8. Do you have any other products that offer a lower interest rate? Loans are not one size fits all. There are a number of different options available. See what your options are and if you can get a lower mortgage payment.
I hope you found this information helpful. If you have any other questions about buying a home or refinancing, just give me a call or send me an email. I would be happy to help you!