The availability to work from home has opened up the possibility to live wherever you want. But, when looking to purchase a home, it can be overwhelming. The flood of information and different lenders can be vast. There is no need to panic, though. Knowing a few things to look out for or information to keep in mind can help narrow things down to get you to the best option for you and your family.
Things to pay attention to:
- Term. How long is your loan for? There can be a variety of products available. Some standard terms would be 10,15, 20, or 30 years.
- Interest rate. What is the cost of doing business? It is the rate a lender charges a borrower and is a percentage of the principal balance. You want to ask a few questions. Is it a fixed rate or adjustable? A fixed-rate is the same rate over the life of the loan. An adjustable-rate means it would change throughout the life of the loan. Make sure you understand how often it will change, how much, and what the highest it can go to so you are fully informed.
- Prepayment penalty. If you pay your loan off early, will you be charged additional fees?
- Balloon payment. Will you have a large payment due at the end of your loan?
- PMI (Private Mortgage Insurance). When will PMI (Private Mortgage Insurance) come off the loan? You will have PMI with most lenders if you pay less than 20% down. They will give you an estimate of when the PMI will come off of the loan if you just make the minimum payment.
- Estimated cash to close. What do you need to pay to complete the loan? This figure will include your down payment plus closing costs associated with the loan (ex: appraisal, title work, recording fees, etc.)
- Total Interest Percentage (TIP). How much interest will you pay over the life of the loan? The TIP tells you the interest you will pay on your mortgage loan, in addition to the amount borrowed throughout the life of the loan. To calculate this, the total of all minimum, on-time payments is divided by the loan amount, yielding a percentage. For example: if you have a TIP rate of 50% on a $100,000 loan, you will pay a total of $50,000 in interest on top of the $100,000 principal balance.
Some other things to know:
- Assumption. If you sell the home, can your potential buyer take over your current loan, or will they have to get their own? Some loan products allow for assumptions if the buyer meets specific criteria the lender sets.
- Late payments. Do you have a grace period? If so, how long is it, and what is the penalty for late payments. The penalty is a percentage of the principal and interest payment charged as an additional fee.
- Servicing. Will your loan stay with the lender you apply with, or will it be sold to another company? This information will tell you where your payments need to go and who you can contact to ask any questions you may have on your account.
Being informed about the ins and outs of home loans can give you a big advantage. Don’t be afraid to compare offers from several different lenders. Make sure that you are comfortable with the lender. You should feel confident that they will be able to provide you with the loan that you need. Knowing what to look for in a loan and what questions to ask will help ensure that you get the best deal possible.
