You think you’re ready to join the two-thirds of American households who own their own homes. There is so much to learn – about home buying, about real estate agents, and most critically, about mortgages. The mortgage, after all, will cost you hundreds of thousands of dollars, be with you for as long as 30 years, and likely represent your largest monthly expense.
A mortgage is a loan; in other words, you are purchasing money. You get a large amount of money up front and pay a price – interest – for its use over a long period of time. Small changes in the terms of that loan can make a big difference in your life.
You should shop for a mortgage and find a lender who can answer the following questions to your satisfaction before committing to a particular mortgage, says Mark Branstrom, Retail Mortgage Group President at CresCom Bank. CresCom offers low rates and personal service to make your borrowing experience as enjoyable as possible. We even provide this checklist so you can be ready when the time comes.
- What is the interest rate? The lender should separate out interest rate and fees, and include an annual percentage rate, often abbreviated as APR, which tells you the real cost of the loan.
- What about discount and origination points? In order to secure a low rate, you may have to pay upfront costs, called discount points. A point equals one percent of the loan amount. If you’re borrowing $100,000 and need to pay a point in order to get a low rate, that will cost you $1,000 as part of your closing costs. Origination points are fees charged by the lender to create the loan.
- How much are the closing costs and what are they for? In addition to discount and origination points described above, there can be significant transactional costs involved in purchasing a house, such as title, attorney, credit report, appraisal and recording costs. Lenders are required by law to provide a written estimate of closing costs within three days of receiving a loan application.
- What is the minimum down payment for a loan? In order to lock down a low interest rate, it may be necessary to make a larger down payment – as much as 20%. Most lenders will make a loan with as little as 5% down, but that requires a higher interest rate and the added cost of private mortgage insurance. VA-backed loans for active and retired military don’t require any down payment. Make sure you know what the terms are.
- Are taxes and insurance included in the mortgage payment? Tax and insurance are often collected monthly along with the mortgage payment and placed in an escrow account – but not always. It’s important to factor in those costs as well.
- How can I lock in my interest rate? To ensure that the interest rate doesn’t rise during the loan application process, most lenders allow borrowers to lock in their rate for a specified period of time. Some charge for this, so find out how much you will have to pay to lock in your rate.
- What documents will I need in order to complete the loan application? Underwriting guidelines have become much stricter since the housing crash of 2008. You may be required to provide a variety of documents to prove you have the income and savings you claim. That may include bank statements, tax returns, W-2 statements, pay stubs, a complete list of debts and assets, and cancelled checks for rent or current mortgage. Your lender may require additional documents, depending on the circumstances.
- How long will it take? Assuming you have an offer on a house, you’re bound by the terms of the purchase contract, which may require completion of the sale by a certain date. In addition, if you have locked down your rate, you want the application approved before your time runs out. It is important to know whether the lender can process the application within your time frame.
CresCom Bank gives you a wide variety of mortgage options. Check them out online or by calling 855-CRESCOM (273-7266).