Home Loan Questions to Ask Before You Commit
December 20, 2020
Are you interested in applying for a home loan? The Federal Trade Commission has some advice you should take, advising consumers to ask a series of questions of any lender they are considering for a mortgage loan. And there’s a good reason for this advice--not all home loans are the same, and not all offer the same consumer protections you get from an FHA mortgage.
For example, the FTC warns house hunters about some issues that are NOT problems for those who apply for FHA home loans to buy or refinance. In general, the FTC advises borrowers to ask about any applicable penalties for early payoff of the mortgage loan--fees charged for paying off the loan amount before the term of the loan officially ends.
You might not be planning to keep your home for the full loan term, but don’t forget that “early payoff” can include situations where you sell or refinance the home before the term of the loan ends. What should you ask the lender in such cases? A set of questions like this:
"Will you have to pay penalties to refinance or pay off the loan early? If so, how much, and when would they apply? If the loan has an introductory or teaser rate, can you refinance, without penalties, before the rate resets and your payment increases?"
The good news for those seeking FHA mortgages? FHA loan rules state borrowers cannot be charged a penalty for early payoff of the mortgage no matter if that early payoff is due to refinancing or any other means.
That’s a definite advantage for FHA borrowers, but the FTC has other questions you should ask the lender no matter what kind of loan you want. One important area involves your monthly payments. Ask the lender:
"What will the monthly payment be for every month of the loan, and could it increase? When could it increase? What would your new payment be? Could your monthly payment increase more than once?"
All mortgage applicants should make sure they know the terms of the loan and the meaning of those terms. For example, do you want a fixed-rate or an adjustable rate mortgage?
Ask the lender to explain which specific loan product your application is for. If you specifically want a fixed rate or adjustable rate mortgage let the lender know you are not willing to commit to another kind.
The FTC also says you should ask specific questions about escrow requirements for your home loan. This is especially important for FHA One-Time Close construction loans, FHA 203(k) rehab loans, and similar loans.
"Does the monthly payment include an escrow amount to pay for your property taxes and homeowners insurance? Or must you pay these costs on your own?" In cases where you must pay on your own, be sure to get an estimate from your loan officer.
There is nothing wrong with being an informed consumer--you don’t have to ask such questions in an adversarial way. Any reputable lender is happy to explain the answers to you and you’ll make a more informed decision about your home loan.
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Here's the Scoop on Conventional Loans
When Do You Need a Cosigner?
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For example, the FTC warns house hunters about some issues that are NOT problems for those who apply for FHA home loans to buy or refinance. In general, the FTC advises borrowers to ask about any applicable penalties for early payoff of the mortgage loan--fees charged for paying off the loan amount before the term of the loan officially ends.
You might not be planning to keep your home for the full loan term, but don’t forget that “early payoff” can include situations where you sell or refinance the home before the term of the loan ends. What should you ask the lender in such cases? A set of questions like this:
"Will you have to pay penalties to refinance or pay off the loan early? If so, how much, and when would they apply? If the loan has an introductory or teaser rate, can you refinance, without penalties, before the rate resets and your payment increases?"
The good news for those seeking FHA mortgages? FHA loan rules state borrowers cannot be charged a penalty for early payoff of the mortgage no matter if that early payoff is due to refinancing or any other means.
That’s a definite advantage for FHA borrowers, but the FTC has other questions you should ask the lender no matter what kind of loan you want. One important area involves your monthly payments. Ask the lender:
"What will the monthly payment be for every month of the loan, and could it increase? When could it increase? What would your new payment be? Could your monthly payment increase more than once?"
All mortgage applicants should make sure they know the terms of the loan and the meaning of those terms. For example, do you want a fixed-rate or an adjustable rate mortgage?
Ask the lender to explain which specific loan product your application is for. If you specifically want a fixed rate or adjustable rate mortgage let the lender know you are not willing to commit to another kind.
The FTC also says you should ask specific questions about escrow requirements for your home loan. This is especially important for FHA One-Time Close construction loans, FHA 203(k) rehab loans, and similar loans.
"Does the monthly payment include an escrow amount to pay for your property taxes and homeowners insurance? Or must you pay these costs on your own?" In cases where you must pay on your own, be sure to get an estimate from your loan officer.
There is nothing wrong with being an informed consumer--you don’t have to ask such questions in an adversarial way. Any reputable lender is happy to explain the answers to you and you’ll make a more informed decision about your home loan.
------------------------------
RELATED VIDEOS:
Here's the Scoop on Conventional Loans
When Do You Need a Cosigner?
Analyzing Your Debt Ratio
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