Not only do you have to ask yourself several questions as you work towards owning your home, you also have to ask plenty of questions of the people helping you to become a homeowner. Wyndham Capital Mortgage welcomes borrowers to ask as many questions as they need to feel confident and comfortable in their decision, but there are five mortgage questions you should ask your loan officer as you’re completing the home-loan process.
1. How Many Origination or Discount Points Will I Pay?
Depending on your lender and loan, you might have to pay either origination points or discount points, possibly both. If this is the case for your mortgage loan, know that a single point equals one percent of your loan. The great thing about discount points is they result in an interest deduction based on the amount of interest you pay on your loan, and they’re also tax deductible. As far as origination points, they’re simply the fees you pay for lenders setting the wheels of your loan in motion.
2. What Is the Average Interest Rate on This Particular Mortgage?
The interest rates for mortgages are always changing, so there is no average interest rate. This makes it imperative that you "lock in" your interest rate when talking to your loan officer. That way, if rates rise, your rate will stay locked in it's original rate. Even though you’re likely to see the interest rate on your mortgage paperwork, you should ask for a breakdown of that rate if one isn’t provided for you on the loan forms. Specifically, ask your loan officer to clarify whether your rate includes the interest rate as well as any fees and other charges you have to pay. You don’t want to find out later that the interest rate you received only included a portion of the fees you need to pay. It’s always best to ask for clarification now in order that you aren’t hit with a financial surprise later.
3. When Am I Able to Lock in an Interest Rate, And How Much Does It Cost?
Once you’ve got your interest rate, your next question should be when you can lock it in. The reason we suggest this question is that interest rates can fluctuate wildly from when you first start the mortgage application process to when you finally close on your loan. To keep victory from slipping through your fingers, you have the option of locking in the interest rate you receive as well as any points you decide to use. Know that you may only lock in rates and points for a limited time, so plan accordingly. There’s a chance you might have to pay a fee for locking in, but it might be worth it in the long run.
4. Does This Loan Option Come With a Prepayment Penalty?
To make as much money as possible off of a loan, some lenders charge borrowers a prepayment penalty if they pay off their loan before it has a chance to fully mature. Besides paying the loan off early, you might be hit with a penalty if your principal balance decreases or if you refinance your mortgage. Make sure you clearly understand the terms of prepayment penalties if it turns out your mortgage includes them.
5. What’s the Smallest Down Payment I Can Make on This Loan?
How much should you put down on a house? Well, different mortgages come with different down payment requirements, so be sure you know your requirements and that you can meet them before signing on the dotted line. In most cases, it’s best if you make your down payment as large as possible in order to reduce the total amount you have to borrow. Borrowers who aren’t able to gather the standard 20 percent down payment aren’t automatically disqualified from mortgage approval, but they are likely to have to pay PMI (private mortgage insurance), which bumps up their monthly payments.