Some overall tips and great questions you can ask a mortgage professional when checking into mortgages. If your mortgage professional can’t answer these questions up front, then talk to another :
Most people will focus on the rate they get only. However, it is equally important to understand the costs to getting the loan. So a loan’s total cost and what you should find out is:
- “What are my options in terms of borrowing? I want to know about the differences between conventional loans, FHA loans, ARM loans, and any other loans that may be best for me. What would the down payment be?” “What loan do you believe is a good fit for me based on what you know about my circumstances?”
- “What is the interest rate I can attain and the terms of the loan (i.e. fixed, ARM, interest only, etc.)?” “What is the difference in rates and terms for a conventional loan versus FHA loan?” – Note: I highly recommend a fixed long term loan over other products given how rates are and to keep the loan from adjusting in the future (which spurs on a refinance typically).
- “What are the costs of the loan (i.e. origination costs, discount point costs, underwriting fees, etc.)?” Discount points are when you pay extra to buy down the rate. When talking with a mortgage person, it is great to ask as a follow-up, “How much would it be to buy down the rate further?” Sometimes a little money up front will bring your rate down further to your benefit later.
- “Can I get a Good Faith Estimate based on everything you know?” Some mortgage folks will be hesitant to provide this but it really shouldn’t be a problem to do and should be provided.
- “What is your expectation for rates to go down well into the lower 4% percent range?”
If you have other questions you feel may be worthwhile to add, let me know. I hope this is helpful.
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Great advice, David. Regarding the ‘Good Faith Estimate’, you are correct when you say lenders are hesitant to provide this information… I have two friends that are loan officers, for two nationally recognized lenders, and both refuse to provide buyers with this information when the phones are “hot”. But if buyers persist, the lender will give you this info.
Rick NHS´s last blog post..Median Price of Homes: Record 12.4% Drop in 2008 to $180,100
Just how to you expect the government to “push rates down” to 4%? We have been funding loans @ 4.875% 4.901% APR thats 0 points 0 origination fees for the past few weeks. Have you done the math between 4 and 4.875? You need a new mortgage provider. Jim Nelson CEO
I believe Jim’s comment has less to do about the post here and more to do with a comment I wrote on AZCentral.com regarding talk of the government working to reduce interest rates on mortgages to the 4% range. Now, Jim is likely talking to the fact that there are no real direct controls to doing this and that rates are much more market driven than anything else. So, talk of ‘pushing rates down’ is to him just not possible as that’s not how the market works. Great.
Having said that, the gist of my post had more to do with the short-term and long-term benefits of very low mortgage rates for home buyers and existing homeowners than anything else. Perhaps, I should have couched the ‘push rates down’ as more of a ‘government sponsored discount buydown’ that would function much like when a borrower pays discount points to reduce the interest rate they will have for the loan. So, the clarification here is both reasonable.
The other point I want to make here is that the conventional thinking that has taken place these past years is not the creative thinking that is going to be required to get through this difficult period in American economic history. In other words, people need to be thinking out of the box and look at all perspectives. I believe what I was highlighting was a great benefit to Americans if we all had sub 5% or sub 4.5% loans for our homes and what the long term impact will be.
So, Jim, thanks for the comment. Best of luck to you.
Follow-up regarding Jim Nelson’s earlier post…
Readers should check out http://makinghomeaffordable.gov/index.html to see if they will be eligible to refinance their home even if their home is slightly underwater.
I see this as a start to improving U.S. homeowner’s financial state long-term and something I’ve wanted to see.