Nearly one-third of Americans plan to purchase a house in the next five years. Many of these will be first-time home buyers, while others will be moving or upgrading. Either way, that’s a lot of people either navigating the (often stressful) home loan experience for the first time — or for the first time in a long time.
If you’re one of them, congratulations! As you work through all the paperwork, terms and to-dos, answers to these key questions can help you understand your loan and your financial obligations, both now and in the future.
When will the lender pull your credit history?
To approve you for a mortgage, a lender will need to make an inquiry — or a hard pull — on your credit history. This is unavoidable, and hard pulls do have a small negative impact on your credit score. All mortgage-related credit checks within a 14- to 45-day window (depending on the scoring model) are treated as a single pull, so make sure you know when they’re happening, and put them off until you’re serious about house hunting so that your credit score doesn’t suffer.
What’s the interest rate?
Obviously, you’ll want to know how much you’ll be paying each month. But take time to confirm that the quoted rate is for an amount of the loan period and that the rate doesn’t require you to pay discount points, which increase the fees required at closing. Don’t forget to ask whether a lender can lock in your quoted rate for a certain period of time to help ensure that your rate stays stable no matter what happens to the market.
If you opt for an adjustable-rate mortgage, ask about periodic and lifetime rate caps, which limit how much your interest rate can increase from year to year and over the life of the loan, respectively.
How much down payment do you need?
If you can put 20 percent down on a house, you’ll start off with a solid base of equity and you’ll avoid paying private mortgage insurance (PMI). Otherwise, see if you qualify for down payment assistance programs or Federal Housing Administration (FHA) loans, which only require a 3.5 percent down payment. Or, you may be able to obtain a conventional bank loan with a down payment of just 5 or 10 percent.
What are the closing costs?
Closing costs can include origination fees, title insurance, appraisal fees, credit report charges, prepaid property taxes and homeowners insurance, and other items. Get an accurate estimate so you can plan for the cash that you’ll need to finalize the loan.
How long will it take to close?
Missing a closing date can put the entire sale in jeopardy. Ask your lender what you can do (such as submitting certain documents on time) to avoid snags. Also, ask if your lender guarantees on-time closings. Some financial institutions will pay borrowers a fee if they’re unable to close within a certain time period, as long as the bank is the cause of the delay.