Knowing what to ask your lender when you're ready to apply for a mortgage will save you lots of money, stress and heartache. Get answers for each of these questions before signing your mortgage application.
1. What is the interest rate on this mortgage?
To know exactly what you'll be paying in interest over the life of the loan, you need to know the rate. This is the most important figure to obtain.
2. What closing costs will be charged on this loan, and will you provide the "good faith estimate" of those costs up front?
Mortgages come with fees for various services that lenders and other parties involved in the transaction provide. You need to find out what you'll be charged as early as possible. Many experts say you shouldn't use a lender or broker unless that person will provide a good faith estimate up front.
3. When can I lock in the interest rate, and what will it cost me to do so?
The interest rate of the mortgage you're applying for may go up or down between the time you apply and the time you close. That's why you may want to lock in the rate for a specified period, rather than let the rate float until the closing. Be sure to ask the lender if there is any fee for locking in the rate and whether you can also lock in points.
4. Is there a prepayment penalty on this loan?
The prepayment question is most important for loan shoppers with less-than-perfect credit because penalties abound in the subprime lending world. But even conventional borrowers should ask about any prepayment penalties that may apply. In some cases, they can get lower rates by accepting penalties on their loans.
Find out the duration of any penalty period and how the fee would be calculated. Some penalties are 1 percent of the loan amount; others are equal to six months worth of interest. Some apply only when you refinance or reduce the principal balance of the loan by more than 20 percent; others also will kick in if you sell the house.
5. What is the minimum down payment required for this loan?
Depending on the amount of your down payment and its relation to the price of your home, you might be charged different interest rates or quoted different loan terms. Loans made at high loan-to-value ratios can cost more than loans with larger down payments. Still, customers with good credit who are willing and able to pay mortgage insurance can get conventional loans with down payments that are much smaller than 25 percent. You may also qualify for mortgage insurance from the Canadian Mortgage and Housing Corporation (CMHC), allowing you to purchase property with as little as 5 percent down.
6. What are the qualifying guidelines for this particular loan?
The qualifying guidelines can relate to your income, employment, assets, liabilities and credit history. Some first-time home buyer programs and government-sponsored loans have easier qualifying guidelines.
7. What documents do I have to provide?
You will need to provide proof of income and assets to get a mortgage loan. Find out what documents will be required in your particular situation by asking your lender.
8. How long will it take to process my application?
This varies from lender to lender. It often depends on how much business your particular lender is doing and how much business the market is seeing as a whole. When borrowers are knocking down doors all over town, underwriting departments back up, appraisals take longer to obtain and other bottlenecks develop. Get a realistic estimate, and use that to figure out how long a rate lock you'll need.
9. What might delay the approval of my loan?
If you provide the lender with complete, accurate information, everything should go smoothly. However, there could be a delay if the lender discovers credit problems, which is why it is critical to get your credit in order.
Bruce Gillespie is a freelance writer and editor in Simcoe, Ontario
The Royal Bank has a great website that answers most mortgage questions
TD-Canada Trust on mortgages
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