Home loans often come with a lot of questions, and that’s a good thing because home-related loans are often the biggest financial decisions you’re likely to make. But even the best inquiries are wasted if they come too late. With that in mind, today we’ll be discussing some of the questions you should be prepared to ask before the ink dries on the loan paperwork. 

Is this a fixed or adjustable-rate loan?

The structure of a home loan’s interest rate is one of the biggest deciders of the overall cost but it’s also one of the most widely misunderstood. You’re too busy looking for your dream home for confusion, so let’s clear that up right now.

First, home loans typically fall into two categories — fixed-rate and adjustable-rate loans.

1. For fixed-rate loans the interest rate will remain locked for the initial life of the loan, typically 15 or 30 years.
2. Adjustable-rate loans have an interest rate that will remain locked for a short period of time before it’s changed to a fluctuating rate that is dependent on markets and lender guidelines.

While these two terms seem simple enough, the confusion often comes in when it’s time to pick the best rate for you. The reason is that adjustable rates are initially much lower than their fixed counterparts, making it an enticing option from the start. However, after the initial fixed period on an adjustable-rate loan has ended, they can change, sometimes drastically.

While some customers can avoid this by refinancing their loans later on, refinances are subject to future rate changes and they can be difficult to approve if there is a loss of income later on.

Both of these are great options for financing your next home, but it’s important to understand your needs and address them with your banking officer early.  

What are my closing costs?

So you’ve found a house and your offer has been accepted, congratulations! Although the heavy lifting has been done it’s time to consider closing costs. Closing costs typically include escrow and insurance payments, property taxes and appraisal fees, and they are another huge factor in the cost of your new home.

Anticipating closing costs early on offers you the chance to shop around and compare Good Faith Estimates (GFEs), as some lenders will have lower rates and higher closing costs, while others will waive closing costs altogether for certain loans.

What do you need as proof of income?

With home prices on the rise despite the pandemic it’s important to understand how much you can afford as well as how to prove to your lender that you can afford it. While it may seem obvious that your lender will want proof of income, it isn’t always obvious what kind — and how much ­­­­–  proof of income they’ll require.

For example, a salaried employee working one job for the past 15 years will be required to show a much different set of documents than a new business owner who drives Lyft on the side while dog-walking for cash tips on the weekends. Clearly communicating your unique situation to your lender before you start the loan process can you time, money, and a lot of frustration later on.

Should I refinance?

If you already have a mortgage, great for you! You’re one of the 64 percent of Americans who own rather than rent. Now that you’ve made that cozy home your very own, it may be time to consider refinancing.

Refinancing a home is the process of restructuring a loan’s original terms and, depending on your unique goals and circumstances, can have many benefits including:

• Lowering your monthly payments by extending the loan term.
• Lowering your interest rate which may lower your monthly payment and will generally lower the overall cost of the loan as long as you don’t extend the loan term.
• Refinancing can free up cash by using your home’s accrued equity.

While refinancing has numerous benefits, it also has its drawbacks. For example, extending a loan’s terms may lower the monthly payment, but it will also cost more in the long run. On the other hand, lowering your term will save you money, but the added monthly cost may be too much to handle.

In the end, refinancing is wholly dependent on your unique situation and what your goals are so the first step is to identify what they are.

So, what have we learned today? We learned that there are a multitude of ways to save money when deciding to finance your first, second, or existing home, and all of these money saving tips start by asking the right questions.

You’ve got questions, we’ve got answers.

For help with you home purchase and refinance needs, visit our mortgage page or stop into one of our branch locations and speak with an officer today.

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