A mortgage loan is a loan secured against a property. Borrowers use mortgage loans to make high-value real estate purchases without having to pay the full amount at once. The borrower is required to repay the loan in preset amounts. Similar to any other loan, the borrower pays interest along with the principal. He may repay the amount over a period of time until he owns the property. If the borrower fails to repay the loan, the lender can foreclose.
Obtaining a mortgage loan is not an easy task. Without proper information, you are likely to become confused. You need to ask the right questions to your mortgage lender and evaluate his responses carefully before making a decision to engage him. Misinformation about financial matters can give you much grief later.
Some of the important things that you should ask your mortgage lender are described below.
1. What forms of mortgages are being offered?
There are several types of mortgages such as fixed-rate mortgage, adjustable-rate mortgage, interest-only mortgage, and payment-option adjustable-rate mortgages. You must ask your lender which ones he can offer and choose the one that best suits your needs. In a fixed-rate mortgage, the amount of interest to be paid does not change. You are required to pay the same amount irrespective of a rise in market interest rates. These mortgages usually have a long term. In adjustable-rate mortgages, the interest rate is fixed only for an initial term. Once this term is over, the interest rates fluctuate depending on the market.
2. What is the annual percentage rate of the mortgage loan?
The interest rate that is mentioned in advertisements does not cover the actual cost of borrowing because it does not include other costs such as origination fees, closing costs, mortgage insurance and so on. The interest rate, which is mentioned in the mortgage note, may seem very affordable because it is usually much lower than the annual percentage rate. However, this is misleading as it excludes many costs.
3. What are your fees?
You must clearly ask the lender to state his mortgage application fees because they may offer very low interest rates to mislead you but add a high application rate to it. Depending on your savings, you can decide which scheme to take up.
4. Is there a prepayment penalty?
You must ask your lender if you will be required to pay a fee for repaying your loan earlier than determined. The amount can vary from 1 percent of the loan to 6 months’ interest. Such penalties may make it difficult for you to resell your house at a later stage. However, you may be offered a lower interest rate should you choose to accept prepayment penalties.
5. What are the qualifying guidelines for the loan?
The qualifying guidelines for a loan are requirements related to your employment, your credit history, your assets and liabilities, and your income. Certain government-sponsored mortgage programs may have relaxed guidelines. The minimum down payment amount and the income-to-debt ratio may vary depending on the location.
6. How long will it take to process the loan?
The time taken for the lender to process your loan depends on several factors. You should submit all the required documents and complete the paperwork on time. Also, you should be available for any questions that the lender might ask. If the lender has several clients, he may take longer than anticipated. It is usually practical to assume that your loan will be processed in two months.
7. What are the factors that may delay approval of the loan?
The factors that can delay the approval of your loan are inaccurate information, changes in salary structure, changes in debt status, or a change in marital status from the time you submit your application to the time you receive the funds.
8. What are the documents that are required to obtain the loan?
You will most likely be required to submit proof of your employment, your income and your assets. You may also be asked to submit your credit report and credit score.
Your mortgage lender should be upfront with all his answers to these questions. If you feel you are being nudged towards taking up a certain scheme, you should be careful not to get misled.
Robin Fitzpatrick is blogger for Surratt Law ( http://surrattlaw.com/estate_planning.html ). He likes to write on law, various legal issues related to family law and also on different SEO related topics.