Questions You Should Ask When Obtaining a Mortgage Loan
Many home buyers, especially first time home buyers, are so excited and nervous at the prospect of purchasing a home that they sit in the lender's office, glance over a ton of official looking paperwork, sign on the bottom line and never really give any consideration to what they should be asking the lender before they make that all important final step in the mortgage process.
While the lender will be asking you for a lot of background information in order to insure you are the best fit for the money they will loan out, there are critical questions you should ask the lender as well. Failure to ask mortgage lenders the right questions can result in misunderstandings and ultimately the loss of a significant amount of money. Doing your research, asking the questions, and taking the time to understand the mortgage loan you are being offered will result in substantial savings, both in money and headaches.
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First, find out exactly how long it will take to process your mortgage. If you are obtaining pre-approval to purchase a home this may not be as critical, but if you have already placed an offer on a home with a contingency of obtaining financing, this can be critical. The deal can be lost and someone else may buy the home out from under you while you're still waiting around for the underwriting to go through. So, save yourself the headache and get a clear idea up front of how long the lender expects the process to take.
Secondly, ask the lender if there will be any kind of pre-payment penalty on the mortgage loan. Sure, you're not thinking about paying off the loan now. Today you're just thinking about getting approved and then making the monthly mortgage payments. However, there may come a time in the future when you either have an opportunity to pay off the balance of the loan or you wish to re-mortgage. In either of these instances, the existence of a pre-payment penalty on the mortgage loan will become crucial. It's best to find out now rather than later.
While it may sound ridiculous, many homeowners overlook asking the lender what the interest rate on the mortgage loan will be. They are so caught up in the excitement of purchasing the home, and the anxiety of obtaining financing, they simply assume they are getting a good rate and forget to check out the fine print to make sure they really are. Quoted rates and actual rates can sadly, sometimes be two entirely different matters. Don't get stuck with an absurdly high interest rate. Make sure you take the time to verify the interest rate you're going to be paying for the next 15 or 30 years.
Read over the fine print and make sure there are no clauses on the mortgage loan that would cause the interest rate to shift or change during the course of the loan. Most fixed rate loans, are just that, fixed for the entire duration of the mortgage loan. However, in some instances, homeowners are offered one interest rate for a short period of time; usually around 3 to 5 years and after that time period is up, the interest rate changes. Now is the time to make sure you're aware of any such existing clauses.
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Also, look for and ask about any tie-in clauses or requirements. Tie-in's are clauses from lenders that make requirements of homeowners such as purchasing their homeowner's insurance through a specific company, etc. The additional costs of such tie-in's and sometimes outweigh the advantages of a low interest rate. If you see anything like this in your loan package, be sure to ask about it.
Ask your lender whether your loan will be resold. While lenders cannot predict the future and may not be able to give you an answer to this question, in many cases they are perfectly aware the loan will be sold in a secondary market. Don't you think it's important to know if your lender is going to be changing right after you finalize the loan? Take the time to ask and also find out if the loan is sold, who will service the loan; the old lender or the new lender.
Finally, read over the list of closing cost fees carefully and ask about anything that is unclear or that you just simply don't understand. Don't take it for granted that all fees charged by lenders are standard or necessary. If something seems to stand out, ask about it. If you received a closing cost statement at the beginning of the loan process, and you should have, make sure what you are asked to pay at the end matches this statement.