Types of loan
programs available? It is important when speaking with a lender to find
out what loan products they have, if there is flexibility with down payment
options. Oftentimes, lenders have programs that allow you to finance with
credit scores as low as 580. This is primarily for people with derogatory items
on their credit history or self-employed borrowers.
What is the rate/APR? The interest rate is the amount you pay on the loan
borrowed, whereas APR is the total cost of financing all fees and closing
costs. If there is a large gap between the rate and APR it is due to higher
costs being rolled into your loan balance.
Monthly
payment-the total payment will include your property taxes
which will change year to year along with homeowner’s insurance. Lenders will
account for any homeowner’s association cost when you are being qualified but
you will still be paying those HOA dues
on your own.
Prepayment penalty- It is very rare that loan programs
have prepayment penalties but it is always important to ask especially for
programs that allow lower credit rating.
What are the
closing costs? It is open to ask lenders if there are any loan
origination charges, most lenders charge up to 1% of your loan amount. You want
to watch out for any junk fees, oftentimes there will be processing or
underwriting fees in addition to rate lock charges. The good news is there are
some lenders out there that will charge a deposit for your appraisal but credit
that cost back to you at closing. Always ask if there are any lender credits
issued back to you at closing or associated with the interest.
Close on time
Guarantee? For buying a house, any guarantees offered is a great
way to give you peace of mind at closing along with strengthening your offer in
the seller’s eye. Of course, most lenders do not intend to pay this out so you
really want to have this to guarantee the loan closes on time and eliminate any
rate lock extension costs.
Will you Service
or sell my loan? There are advantages if a lender services their own
loans, sometimes this allows for more flexible underwriting or appraisal
waivers. The downside of this is you will typically pay more in interest
because the investor expects to make higher returns on your loan. Consumers are
often worried if the originating party does not service the loan, however you
end up saving more money long term.
Are there
discount points? Discount points are the costs paid to get a lower rate
and payment. One point is equivalent to one percent of your total loan amount
financed. This makes sense if you want to stay in the loan long term and get a
larger savings down the line. The tax credit is also a nice bonus at the end of
the year. Alternatively, you can opt for a higher rate where you get a credit
towards your closing costs and keep your mortgage balance low. Most lenders
will quote you based on par pricing, which is the interest that comes with
neither points or a lender credit.
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