If you are a first-time home buyer, the process of becoming a homeowner can feel stressful and overwhelming. But before you settle on the house, you need to ask yourself, the real estate agent, and your lender a few key questions to help you prepare for a smooth home buying process. Once you begin house hunting, you will understand the importance of these questions and it will allow you to settle on a house ideal for you.
Asking the right questions to the lender can make the borrowing process quicker and easier. Whether this is the first time you are applying for a loan or you already have a loan, it is important to ask these questions straightforwardly. They will help you decide whether you have the ability to make the loan repayment or not and whether you should proceed with the home buying process or wait for a while.
1. What can I afford and will I qualify for a loan?
A very important question to ask your mortgage lender, he will help identify the exact amount you can afford. They will help you figure out a number based on your assets, income, and credit score. It is highly recommended that you do not spend more than 26% of the monthly gross income on the mortgage and you will also have to take into account other costs like insurance and property taxes. This is where this conversation will make all the difference. It will help you decide how much you are able to pay for the home. Do not remain under the assumption that you will always qualify for a loan. When approving the loan, lenders take into consideration many factors and they look at things like your assets, income, and credit score to decide if you qualify for a loan.
2. Which loan is ideal for me?
There are different types of loans available for home buyers and they vary in terms of rates, qualifications, and repayment terms. You must be aware of how they work and choose the one that fits your needs.
3. What is the down payment requirement?
The down payment on your home is your financial responsibility and you must aim to save at least 20% of the home’s purchase price if possible. When you put more money into the down payment, you have to pay less in interest. Remember, you will also have to pay closing costs and you must set aside an amount for it. The closing costs will range from 2% to 5% of the home’s purchase price and will depend on the type of property you buy. Keep this in mind when putting money for a down payment.
4. Can I have equity in my home?
Home equity is the value of your ownership stake in the home and you can build equity by making a large down payment or making extra mortgage payments. This equity can help you at a later stage. If you are above the age of 62, you can consider a reverse mortgage. It works just like a traditional mortgage but in a reverse manner. You can borrow some part of your home’s equity in the form of income. You can use a reverse mortgage calculator to see how it works out for you.
5. What will the rate of interest be?
Lenders have two interest rates when you work with them. The first rate is the base interest rate and this is what you will be charged on the mortgage while the other is an Annual Percentage Rate or APR. It is usually on the higher side since it includes the base rate and loan closing costs. Check the difference between the base rate and the APR because the larger the difference, the more your lender is charging in fees. Try to negotiate the rates whenever possible and only agree to a loan when you are certain of your ability to repay it on time.
6. Are there any hidden costs?
This is one question you must ask the lender before you sign the agreement. The lender will have to disclose all the hidden costs for you, if there are any. If you fail to check with the lender about it, you could be in a fix at a later stage. This way, you will know if the costs are within your reach or not.
These are just a few questions you need to ask your lender before you sign the mortgage documents. However, the process might involve a lot of negotiations and discussions with the lender. Do not rush at this stage since you will be liable to make the loan repayment over time. It is a good idea to find a lender who offers a low-interest loan and someone you can sit down with and ask the right questions.