Not only do you have to ask yourself several questions as you work towards owning your home, but 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. In addition to your personal list of questions to ask a loan officer, here are five mortgage questions we recommend you ask your loan officer as you’re completing the home-loan process and why they are important.
1. How Many Origination or Discount Points Will I Pay?
Depending on your lender and loan, you might have to pay either origination points, discount points or 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. Knowing the number and amount of points you have to pay will give you a better idea of the overall cost of buying a home.
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 mortgage 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 have 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. Be sure to ask about such a fee before locking in your rate to ensure it is the right financial decision for you.
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. This is one of the questions to ask a loan officer that you may not think of until it is too late, which is why we recommend asking it early on in the loan process. That way, you can ensure your homebuying goals and the limitations of the loan work well together.
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.
While a majority of homebuyers want to know the smallest amount of money needed to put down on a house, in most cases, it’s good 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 a mortgage approval, but they are likely to have to pay PMI (private mortgage insurance), which bumps up their monthly payments. Knowing how much money to put down on a house before signing paperwork will ensure you are financially prepared for the costs associated with owning a home.
Never feel ashamed about having a list of questions to ask a loan officer. The more you know about buying a home the better. Start by asking these five mortgage questions. Then, as additional questions arise, consult your mortgage lender for support.