A wide variety of loan options are available to consumers that include fixed rate, adjustable rate, interest only and negative amortization loans. Your lender can customize a solution that works best for you. Factors such as how much you plan to use for a down payment, your credit score and how long you plan to stay in the home are just some of the many factors a qualified mortgage professional will use to determine the option that best suits you.
Interest rates change quickly and the interest rate you will receive is based on many factors, including credit, amount of down payment, your debt-to-income ratio and more.
The APR is a calculation that factors in your interest rate as all other fees and costs over the life of your loan. Comparing the APR of loans is the ideal method in determining which loan is the best deal. However, many mortgage lenders do not include all fees in determining their APR and if your mortgage rate is adjustable, there is no way to accurately calculate the APR. Therefore, the most practical way to compare quotes is to request an itemized breakdown of your rate, discount and origination points and fees.
Discount Points: One point is equal to 1% of your loan amount. Discount points represent additional money charged by the lender to lower or "buy down" your interest rate. The more points you pay up front, the lower your rate. Usually for each point you pay on a 30-year fixed loan, your interest rate will be lowered by .125%.
Loan Origination Points: Lenders frequently charge a loan origination fee for evaluating, preparing and submitting your loan. The charge is usually calculated in points, with one point equal to one percent of the loan amount. For example, if your loan amount is $150,000.00, one point would equal $1,500.00.
In addition to the fees charged by your lender, you will be responsible for additional fees paid to third parties as well as prepaid costs.
Third party fees may include: Appraisal and inspection fees, fees charged by the title company (may include closing fees, title exam, search or commitment, document preparation and notary and attorney's fees), as well as government fees (transfer taxes, recording fees and document or transaction stamps).
Prepaid costs are monies paid in advance and may include: Real estate taxes, homeowner's insurance, prepaid loan interest and HOA fees. These charges are related directly to the home purchase and are paid regardless of whether you obtain a mortgage.
Knowing these costs as early as possible not only gives you the opportunity to compare services and their prices but also prepares you for how much money you will need to come up with at closing. Although lenders are required to provide a written Good Faith Estimate within three days of receiving your loan application, remember it is just an estimate and some fees will vary.
Because of the fluid nature of interest rates, you may have the option to "lock-in" your rate. This may be a good option if you have reason to believe that rates are increasing. Be sure to ask what, if any, fees are associated with locking in your rate, the length of time the rate will be locked for and what rate will be charged if the lock-in expires before closing. Additionally, inquire as to if you will be offered a lower rate should rates fall subsequent to your lock-in date. Remember to request written confirmation of your rate lock.
In order to process your loan, your lender will request documentation to substantiate the data supplied on your application. This documentation varies depending on your loan type and circumstances and may include copies of your sales contract, pay stubs and W-2's, investment and bank statements and tax returns.
If you pay of your loan early due to a refinance or move, you may be subject to a prepayment penalty. If there is a fee, find out how much and for how long the fee is in effect.
Your monthly mortgage payment consists of principal and interest and in many cases, escrowed amounts for your taxes and insurance. Some lenders require that money be put aside each month into escrow to cover your taxes and insurance. Approximately 1/12 of the annual required amount is added to your monthly mortgage payment and put aside in an escrow account. The lender pays your annual taxes and insurance when they are due out of this account. If your lender does not require an escrow account or you choose not to have these amounts escrowed, you will be responsible to pay your annual taxes and insurance premiums when they are due.
In processing your loan, time is of the essence. Delays in getting important documents and paperwork to your lender could delay your loan approval and/or closing. The average loan processing time takes between 30-60 days but varies greatly depending on the lender's workflow or backlog. Make sure to ask your lender how long their closing process will take. While your loan is in process, incurring additional debt, changes in job status and reductions in assets or salary can negatively impact your loan, so be mindful of your employment and financial status.
Check the credentials and references of mortgage lenders and ask your lender to speak with clients in your area.