8 Questions To Ask Before Taking a Mortgage Loan
Are you thinking of purchasing a house but don’t have the required funds? Then, a mortgage loan can be a viable option for you. A mortgage loan is a secured loan used by the borrowers to purchase a home or any other piece of property. Typically offered by lending institutions, mortgage loans are availed by providing your immovable asset as collateral to the lender. The lender holds this asset until the borrower repays the total loan amount.
However, before you take a loan, you need to consider various facets of the loan borrowing process, such as the right type of loan for you, interest rates, unanticipated fees, etc.
Here, we have discussed eight common questions to ask from your lender before taking a mortgage loan.
1. Which kind of mortgage loan is best for me?
First and foremost, you need to know what type of loan is best for you and why. So, ask the lender about the advantages and disadvantages of various kinds of loans, like interest-only loans, fixed-rate loans, adjustable-rate loans, etc., Also find out how each option would suit your financial circumstances.
2. How much amount can I borrow to buy a house?
Another point is to know the amount of loan you can afford to achieve your dream of buying a house. While estimating this amount, the mortgage lender may check your income level, expected loan term, credit report, repayment history, and employment status. Also, rather than simply providing you with a particular loan amount, the lender must ensure that it suits your current and future financial conditions. Further, you can use a mortgage loan EMI calculator to estimate the loan amount you are qualified for and the equated monthly instalments for the same.
3. Do I qualify for a mortgage loan?
Mortgage loan eligibility criteria may vary from lender to lender. So before you apply for a loan, make sure you are aware of the several terms and conditions as well as the legal documents required by the particular lender. Various lending institutions also provide a mortgage loan eligibility calculator through which you can evaluate your eligibility within seconds.
4. How much is the down payment required?
A down payment is a critical variable that affects your interest rate, loan terms, and monthly payments. Higher the down payment, the better are your chances of getting the best rates and terms for your loan. Generally, 20% of the purchase price is considered as an ideal down payment for every lender. However, this is not compulsory as a well-qualified borrower can also find as little as 3% with some kinds of loans. So, ask your mortgage lender about the amount you need to put down, depending on your eligibility and financial situations.
5. What is my rate of interest and APR?
The interest rate is a crucial benchmark that helps borrowers compare different loan options offered by lending institutions. So, you must ask your lender for an interest rate quote and also the annual percentage rate (APR) for the loan. The APR typically includes the fees and other loan-related charges which allows you to make a valid comparison among lenders. Accordingly, you need to find the lender who charges the lowest interest rate and APR.
6. How are fixed-rate mortgages different from adjustable-rate mortgages?
Next, you must compare the above two mortgages to find what’s best for you. A fixed-rate mortgage has a 15-30 years term and has the same interest rate for the entire tenure. This means that your monthly instalments and the rate remain constant throughout. In the case of an adjustable-rate mortgage, the interest rate goes up and down according to the market circumstances. These are normally based on a 30-year term.
7. What costs are involved?
The lender may charge fees for setting up the loan or for refinancing, which includes application fee, origination fees, or valuation fees. In addition to these, it may also include various costs associated with appraisal, credit report, taxes, etc. So, remember to collect the information about the different costs or fees involved before committing to a loan.
8. Is there any pre-payment penalty?
Last but not least, it is vital to ask the lenders about the pre-payment terms and penalties if you plan to repay the mortgage early – for example, if you move or refinance.
Final thoughts
Yes, acquiring a mortgage loan is a complex process. So, it is always advisable to ask your lender or mortgage broker to provide all the necessary details of the type of loan you wish to avail.