What to Know Before Meeting With Mortgage Lenders

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Applying for a mortgage loan can be a daunting experience. Buying a home will be one of the biggest and most important financial decisions most people make in their lifetimes. A house payment calculator estimates the cost of homeownership at today’s mortgage rates, accounting for principal, interest, taxes, homeowners insurance, and, where applicable, homeowners association fees.  These calculators are a fairly accurate picture of the monthly payment you will make to the lender. Here are a few things you should know before meeting with a mortgage lender.

Difference between fixed and adjustable mortgage:

A fixed-rate mortgage keeps the same interest rate for the life of the loan which is typically a 15 or 30 year term. Your monthly payment is the same over the term. Adjustable-rate mortgages, or ARMs, have interest rates that change based on the market, so your payment will go up and/or down. Most ARMs are based on a 30-year term and typically start with an initial fixed interest rate for a specific period of time, usually 5-10 years. Talk with your lender about what mortgage is right for you and your situation. 

Is there a prepayment penalty:

Did you know some lenders require you pay a fee in the form of a prepayment penalty? It’s wise to confirm whether this is the case with your lender before applying for the mortgage so you’re not harmed on the back end. Also ask about the lender’s refinancing process to see what you will have to do in the future should you want to refinance.

PMI:

PMI or Private Mortgage Insurance is an insurance product that is added to a mortgage loan when a borrower doesn’t have the traditional 20% down payment for a home. PMI is a percentage of your entire loan amount and helps reduce a lender’s risk of loss should a borrower not be able to repay the loan. Depending on the type of loan you have, PMI will remain on the mortgage until the remaining balance reaches a percentage acceptable for cancellation per the agreement with your lender.

Additional costs:

The cost of a loan includes lender fees, as well as related third-party vendor fees (including appraisals, credit reports, the title policy, escrow where applicable, recording fees, and taxes). You should know these fees upfront in your Loan Estimate document. This document is required to be given to you and should include pertinent information. You should ask for an estimate of these costs upfront, however, before you apply for the loan.

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