The following are some good questions to discuss with potential lenders when applying for a home loan:
- Are both fixed-rate and adjustable mortgage loans available? (see adjustable rate mortgages below)
- How long can I “lock-in” the financing at the current interest rate and what is the “lock-in” policy?
- Is a float down lock available in case rates drop after I have locked in?
- What are the other fees a lender may charge me in conjunction with my loan?
- Are funds for a second mortgage available?
- Is there a pre-payment penalty clause? This involves extra charges for paying off the loan before maturity. About 80% of all loans in the United States are paid off early.
- What is the “grace” period?
- How late can a monthly payment be made before a late charge is assessed?
- What will happen if a payment is missed?
- If you sell your house, will the new buyer (if he/she qualifies) be able to assume your mortgage at the same interest rate?
- Do you have to pay “points” to get your new mortgage? Usually lenders charge points for the cost of giving you a mortgage loan. A “point” is 1% of the loan. Or can you buy down points by selecting a slightly higher interest rate. If you do this and end up with negative points, the bank actually gives you money back at closing. 5% vs. 4.75% is no biggie if you aren’t planning to keep the home for a long time and would prefer to come to closing with a little less money.
- Will the lender require mortgage insurance?
- Is the loan serviced locally or is the servicing sold? Ask for a written “good faith deposit”.
- What will the total closing costs be?
- How often will the interest rate be adjusted?
- Is there a maximum limit on each rate change?
- How often will the monthly payment be adjusted?
- Is there a ceiling on payment adjustments?
- Can the term of the loan be extended?
- What is the maximum rate that can be charged over the life of the loan?
- Is there any potential for negative amortization?
- What is the annual percentage rate?
Hope this helps!