Two important things happen when you sign a mortgage. The first is a long term commitment to your new property, the second is the massive amount of paper work you are about to sign. But lets be honest, even if you read every document, the chances that you understand everything is slim. So whether you understand everything or perhaps still feel unclear, here are four questions we think you should ask before signing on the dotted line.
What is the APR?
Whoa! first thing is first. You are probably familiar with the interest rate, which is not the same as the annual percentage rate. The APR usually covers various cost that are inside the loan, while the interest rate is one specific part. Lenders typically advertise low interest rates but don’t mention anything about the APR.
Does this carry a prepayment penalty?
This is a must know. No one wants to be punished for paying early, but the truth is some loans can do that. It is important to know if there are any fees with early payments or early payoff. When loans do hold fees or penalties they can be in the average of 2% or 4% of the overall loan and are usually applied against borrowers who repay their mortgage in less than five years.
Talk to your lender or borrow about this and make sure you read all the document clearly around this clause.
Can we review the GFE and HUD-1 together?
By Law, you must receive a Good Faith Estimate or GFE. within three days after your lender has accepted your loan application. The GFE as name implies will give you a decent estimate of the loan terms and settlement charges.
You won’t see the HUD-1 until you sit down at the closing table. The HUD-1 document will offer an itemized list of every charge and credit, including escrow fees, title insurance, loan origination fees, attorney fees, rate lock fees, and more. If you are feeling overwhelmed Contact an agent today!
You allowed to make prior arrangements with your agent to look over the HUD-1. This is usually a good idea because you can compare the HUD-1 to the GFE.
How long will my rate lock, and what’s the maximum cap?
This only applies to those who take out an Adjustable Rate Mortgage or (ARM). The interest rate for your loan will stay “fixed” for only a limited number of years e.g. three, five, or seven years. After that your interest rate could increase or decrease.
However there are typically “caps” on ARM loans and usually the prevents the loan from changing interest rates a limited number of times. You’ll definitely want to talk to your broker and clarify and terms with your ARM loan.
Conclusion
You can never ask to many questions when purchasing a home. For all of you first time buyers out there, it’s important to know everything you can about your mortgage. Good luck and happy buying 🙂