In the first two days of “30 days to Buying a Home in Utah”, we ask questions to find out if you are Ready to Buy a Home. Then we look at using a Buyer’s Agent to keep your best interest at the forefront during the process. In both blogs we discuss getting a pre-approval for a mortgage loan. This step is important and will put you ahead of many consumers.
One of the first things The C4 Elite Real Estate Team will do as your Buyer’s agent is refer you to a reputable, knowledgeable mortgage lender. We will attend the initial meeting with you, so that you are 100% comfortable. In that first meeting, you will want to ask any and all questions about getting a mortgage. The answers to these questions will help you understand the process and what it means to sign on the dotted line for the biggest purchase of your life. In that first meeting, what questions should you ask? Do you know what loan program is best for you? How about the current interest rates? These along with other questions will help you understand the process and exactly what is involved when getting a mortgage loan.
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Which Loan Program is Best for me?
The first question you should ask is what type of loan is best for you. Do you know the difference between a fixed rate loan, an adjustable rate loan, or an interest only? Did you know there are loans through the Veterans Administration (VA), which you need eligibility for. Additionally, there are first time home buyer programs through the Federal Housing Administration (FHA) as well as Utah Housing programs. A conventional loan might be the best loan for you if you have a healthy down payment saved up. Finally, be sure to ask about grants that may be available for you to use.
This information can be overwhelming and these are just a handful of the loan options available to you as a home buyer. The lender will be able to walk you through the differences and explain which program is best for you. Do not be afraid to ask questions, that is what this initial meeting is for.
What will my Home Loan Interest Rate be?
Secondly, did you know that interest rates can vary day to day? Mortgage interest rates are determined by three factors. The Federal Reserve, which sets the federal funds rate, is the first organization that determines daily interest rates. The second is the investor demand at the US Treasury, with notes and bonds. Finally the banking industry chimes in to determine the rates. All three of these entities work together to come up with the current, daily interest rates.
When obtaining a mortgage loan, a lower interest rate will of course, help lower your monthly mortgage payments along with other factors. Ask your lender what current rates are, do they see any changes coming up and when should you lock in? They will talk to you about your credit scores and debt-to-income ratios, which play a large part the rate you can get. If necessary, the lender can direct you to companies to improve both your credit score and reduce debt.
What are Mortgage Closing Costs?
Thirdly, you will want to know what all the closing costs are in obtaining a mortgage loan. Ask questions about the cost of running your credit report. If you are obtaining a loan for your home purchase, an appraisal is required. This assures the loan company that the home is being bought and sold for market value. As well as, protects the lender from fraudulent activity. Do you know what an appraisal costs?
In addition to the seller’s title policy, lenders require a lender’s title policy which is an cost incurred by you, the buyer. You can ask what that entails and the cost at this meeting. Be sure to ask if any pest inspection reports are required. How does escrow work? What does it cost? What are the recording fees? And of course, the dreaded taxes. Your lender should be able to explain these costs to you as well as give you a Good Faith Estimate so you have them in writing.
Discount Points? Origination Fees?
Before you leave the Mortgage lenders office, be sure you understand what Discount Points and Origination Fees are. Discount points allow you to buy down your interest rate. Each point equals one percent of your loan. So, two points on a $100,000 loan equals $2,000. You can buy down your interest rate, if higher than you want, with points. However, you should understand the cost and how that works.
The origination fee is in addition to other fees, and is a fee the lender charges upon entering a loan agreement to cover their processing costs. Some lenders can and will waive this fee. Be careful when online mortgage lenders promise “no origination fee” – this may not be an actual money saver.
Can I do a Rate Lock?
Much like you lock your doors when you leave the house, you want to ensure you lock your interest rate. As stated above, the interest rates can change daily, which means they can go down or UP! When your lender quotes you a great interest rate, but the closing date is not for 30-40 days, how do you lock that in? You will want the lender who can guarantee that they will deliver a specific interest rate and the agreed upon points at the closing table. Typically, interest rate locks can be held for 30, 45 or 60 days. In extreme cases, interest rates can be locked for a longer period of time, but it may cost a fee to do so. Find out what is common practice for your mortgage lender and ask for something in writing.
What is a Pre-Payment Penalty?
Finally, ask your lender if there is a pre-payment penalty associated with your loan. A pre-payment penalty is a clause in a mortgage that states a penalty will be assessed if the mortgage is paid down or paid off within a certain time period. The penalty is based on a percentage of remaining mortgage balance or a certain number of months’ worth of interest.
If this is not your first time purchasing a home and like to make extra mortgage payments or want to make principle reductions on your loan, this may be a concern for you. Additionally, if you are a saver and know you will be paying off the mortgage in a short amount of time, this may be an issue. If you are a First Time Home Buyer and this is not your forever home, you will want to know the answer prior to signing any paperwork. Be sure to ask your lender what their company policy is and get something in writing.
We can Help!
Do not drown in the the unknown. There are many other questions you can and will want to ask at your initial meeting. Your Buyer’s agent should be there for the first meeting and can also ask questions on your behalf. However, these six questions should get the ball rolling and help you start to understand the mortgage process.
When you are ready to buy a home, don’t forget you will want a full-time knowledgeable real estate agent by your side. The C4 Elite Real Estate Team is experienced, smart and will refer several lenders to you so that you can choose the one that is right for you. We always recommend you shop around for the best rates and customer service. Be sure to give us a call at 801-678-7959 and we will help you find the home of your dreams as well as a lender who will take the time to walk you through the process.