Frequently Asked Questions About Applying for a Home Mortgage Loan

When you go to a lender for a home mortgage loan, it will certainly be to your advantage to ask some key questions. The more you understand about home mortgages, the better loan you could get. Here are some things you need to know.

What documents will be needed to apply for a mortgage?

You will need to provide sufficient documents that indicate your financial status and ability to repay a loan. This will usually include pay stubs for two years, tax returns, bank statements, and W-2 forms. The list may vary some between lenders, but the more complete your documentation; the sooner you can be approved. Some loans require very little or even no documentation.

What is pre-qualification for a mortgage?

A lender will consider your verbal statement about your financial state, assets, and ability to pay – employment. This will result in a generalized statement about how large of a mortgage you might get. It is certainly no guarantee that you actually will be given a loan.

What is a Pre-approval for a mortgage?

A Pre-approval is what you get after actually providing all your required documentation for a mortgage. After looking at it, the lender will determine an actual amount that they are willing to give you in a mortgage. Home sellers are more apt to deal with you once you are pre-approved because they know you can obtain the financing.

Is there a difference between APR and the interest rate?

Yes, there is a difference. The interest rate reveals the amount of interest you will pay on the remaining balance of your loan. The APR, or Annual Percentage Rate, is a combination of the interest rate and other fees, such as origination, mortgage insurance, points, and other fees for processing the loan. You want to use the APR to determine whether one mortgage loan is better than the other.

What does it mean to lock an interest rate?

Interest rates on mortgages are fluctuating all the time. This means the rate could change between the time you apply and when you are approved for the loan. Locking in the rate guarantees that you will get the rate at the time you applied for the loan. Some lenders will charge to lock it in; others will not.

 What Are Closing Costs?

When the buyer and seller are ready to complete the transaction, they will meet, and closing costs will need to be paid. These costs include attorney fees, documentation fees, appraisal fees, title insurance fees, and more. Buyers will be notified of all costs in advance of the settlement date. Some sellers may share closing costs, but it must be part of the Agreement.

What is Mortgage Insurance?

Mortgage insurance is usually demanded by a lender to protect them in the case of default. It is only applied when there is a downpayment of less than 20% of the home’s value. Payment for this insurance is usually above the mortgage payment and is dropped when less than 80% remains on the mortgage.

Is there a prepayment penalty on loan?

A prepayment penalty is a fee to be paid when homeowners pay off a mortgage earlier than the expected loan end date. The fee can be sizable. Many lenders do not include a prepayment penalty, and buyers will do better without it.

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