If you’re in the market for a new home, you’ll likely need to take out a home loan to afford it. Before doing so, be sure to ask the bank a few questions about the process and what’s required of you. Here are some of the most important ones to get you started.
What Types of Mortgages Do You Offer?
The first step to taking out a loan is determining which one is best for you. A mortgage broker tarneit, or anywhere else, often offers several types of loans, including fixed-rate mortgages, adjustable-rate mortgages, and FHA loans. Be sure to ask the bank representative about each option to determine which is best for you.
What Down Payment Do You Expect?
The down payment is the partial amount you pay upfront for the home. While 20% is the often-quoted amount, it’s not the only option. Depending on the type of loan you get and other factors such as your credit score, you may qualify for a low down payment option that could be a good choice for first-time homebuyers. Be sure to ask your bank about their options when it comes to the down payment on a home loan.
What Qualifications Do You Require?
Another important early consideration is what qualifications the bank requires. One of the most common qualifications is your credit score. Those with higher credit scores are seen as more trustworthy and are more likely to receive the loan—though it’s still possible to be approved with a lower score. Be sure to ask the bank what it looks for when deciding whether or not to approve a loan application. You may also need to provide employment and income information, so be sure to inquire about that as well.
What Are the Interest Rates?
It’s important to find out what interest rate the bank is offering. This will determine how much you will pay monthly for your loan payments. Be sure to ask about both fixed-rate and adjustable-rate mortgages to get a better idea of what you will be expected to pay over the course of the loan. Also, inquire about any changes that could occur in the future.
Do You Allow Interest Rate Locks?
Related to asking about any foreseen changes in interest rates, you should also ask the bank if they offer a mortgage rate lock. This feature that allows you to lock in your interest rate for a certain period, ensuring that it won’t change during that time. Ask the bank about the details of their rate lock and whether or not it’s available with the loan you’re considering.
What Are The Closing Fees?
Closing costs are fees charged by the bank for processing and completing your loan. These can include origination fees, appraisal fees, title insurance, recording fees, and other miscellaneous items. Be sure to ask your bank about an estimated total cost for closing so that you understand exactly what you will be paying.
Do You Have a Prepayment Penalty?
People may find that they can pay off their mortgage sooner than expected, but some lenders don’t allow that. Many banks charge a prepayment penalty for paying off the loan early because they’ll miss out on months of collected interest fees. Make sure to ask about whether the bank has prepayment penalties and what the costs are if so.
Do You Charge Mortgage Insurance?
A common cost in loans is mortgage insurance, which is usually required if you’re taking out a conventional loan with less than 20% down. Ask the bank whether or not they require mortgage insurance and how much it will cost over the course of the loan. You can also find out if there are any ways for you to reduce the insurance cost or avoid it altogether.
Do You Offer Mortgage Points?
Some lenders allow buyers to buy “points” at closing to lower their interest rate. One point is equal to 1% of your loan, so if you’re taking out a $100,000 loan, one mortgage point is $1,000. Be sure to ask your lender about this option and how it could potentially save you money on your mortgage loan. Whether buying points is a good idea depends on your financial situation, but it’s usually best for people with the resources and those who plan to stay in their home for several years.
Do You Have Preapproval or Prequalification?
The distinction between mortgage preapproval and prequalification is important. Prequalification is an estimate of what you may be able to borrow from the lender, while preapproval is when the lender has done a more thorough review of your financial history and committed to lending you a certain amount. Be sure to ask the bank which one they offer so that you know what to expect.
Be Prepared Before Taking Out a Loan
These are just some questions to ask when considering a home loan from a bank. Before signing on the dotted line for a home loan, make sure you understand all of the terms and conditions. The best way to do this is by asking questions, like ones about how much you can borrow, what the interest rate will be, and the timeline for repayment. By doing your research and asking questions upfront, you can avoid costly mistakes down the road.