You’ve seen advertisements claiming “We offer rates as low as…!” You jump at the opportunity for yourself or your client only to find that the rate you qualify for is different than the one advertised. Who does qualify for a rate that low? The answer varies. Potentially, it could be only a select few, which can be very misleading.
Understanding Your Mortgage Rate
It’s common practice for loan officers to provide mortgage rate sheets to prospective buyers. While low rates may look great on paper, it’s always important to read the fine print!. To qualify for the most attractive mortgage rates, a lender may require a significant down payment and/or a sky-high credit score. Let’s review several questions to ask your lender as you begin the home buying process:
What type of loan is best for me?
A qualified lender should explain in detail why they recommend a specific home loan based upon your specific needs and long-term financial goals. The only way your lender will know what to recommend is by spending time with you, asking several questions, and truly caring about matching you with the best home loan possible. After all, purchasing a home is not a small decision! It’s important to work with an experienced lender, not just a salesperson trying to close a home loan in record time.
What is the down payment I will need to qualify for an ideal mortgage rate?
Your lender should be transparent when explaining the down payment required to satisfy an ideal mortgage rate. While some mortgage rates require a considerable down payment, buyers need to know that it is possible to purchase a home with a minimal down payment or even no payment at all. Make sure that you are asking your lender to explain all available options, specifically those that require a smaller down payment.
What is my interest rate?
As a home buyer, you must understand the interest rate of your home loan. The interest rate dictates the amount of money you will be paying to the mortgage lender over the lifetime of the loan.
Furthermore, homebuyers considering an adjustable-rate mortgage (as opposed to a fixed-rate where the interest rate is locked) should ask the following questions of their lender:
How often will the interest rate be adjusted on my home loan?
What is the maximum annual adjustment allowed on my home loan?
Understanding these two items is important, especially when it comes to budgeting. As a home buyer, if you choose an adjustable-rate mortgage, you must be sure that you can afford the monthly payment across the lifetime of a loan (especially when the interest rate is increased).
What is the Annual Percentage Rate (known as APR)?
Once you understand the interest rate of your home loan, ask your lender about the Annual Percentage Rate. The APR refers to the true cost of borrowing money to purchase a home; therefore, the APR encompasses the mortgage points and fees charged by the lender in addition to the interest rate.
What are mortgage points? Homeowners may choose to purchase mortgage points from their lender in exchange for a lower interest rate and lower monthly payment.
Ultimately, you will notice the APR of the mortgage loan is higher than the interest rate because it involves more items than simply the interest charged over the lifetime of the loan.
Do you charge for an interest rate lock?
When you qualify for a home loan, the interest rate offered by the lender has an expiration date. This is because interest rates are based on several factors including the housing market, the buyer’s financial history, employment history, etc. All of these items can change overtime which impacts your credibility as a buyer. That said, it is possible to lock the interest rate offered by the lender for a specific amount of time. Make sure to ask your lender if they charge a fee to lock your interest rate.
Will I have to pay mortgage insurance?
If your down payment is less than 20%, a lender will likely require mortgage insurance (known as PMI) to be paid on a monthly basis. The good news is your PMI will automatically cease when the mortgage loan balance reaches 78% of the appraised value used at the time of the loan origination. A borrower can request it be canceled when the balance reaches 80%.
Do I have to pay a mortgage origination fee?
Don’t forget to ask your lender about their fees and how they will be itemized. It is common for lenders to charge a mortgage origination fee, so you’ll want to be aware and negotiate if necessary.
What will my monthly payment be?
This is the ultimate question that home buyers want to know! What will be the total dollar amount owed every month (including the principal payment to mortgage insurance, APR, and more!)? Your lender should be willing and ready to discuss everything noted on a mortgage rate sheet, as well as your future mortgage statement.
If you’re thinking about the purchase of a home this year, make sure to connect with a GoPrime lender in your hometown today. Our experienced team of mortgage professionals is here to guide you every step of the way from pre-approval to closing.