One of the toughest steps in the home buying process is facing the dotted line and signing the mortgage. It is a huge commitment that is accompanied by a pile of paperwork to sort through. While reading every page of the document could help, you may still find yourself confused with some information.
So, regardless if you are confident to sign the dotted line, you should still make sure to ask these 4 questions according to Trulia:
What is the APR?
There's a different between asking "What's the interest rate?" and "What's the APR?"
When talking about APR, it factors in all the ancillary costs of the loan - such as the interest rate, discount points, and loan origination fees - whereas the interest rate reflects only that one specific piece. There are lenders who spot average buyers who might not know the difference between the two, so they advertise low rates for a mortgage that holds a higher APR due to associated costs.
It is a lender's duty to disclose the loan APR according to the law, so find out that number to help you when looking at different loans.
Does this carry a prepayment penalty?
"Prepayment penalties" are fees assessed if you pay off your mortgage early or refinance into another loan. Typically, they are between 2% and 4% of the loan and are applied against borrowers who repay their mortgage in under five years. These rates could either be flat rate or on a sliding scale depending on the duration of the loan pay off plan. Check documents and find out if your mortgage includes a prepayment penalty or early payment penalty and discuss the terms and conditions of this clause with your broker.
Can we review GFE and HUD-1 together?
GFE or Good Faith Estimate is required by law to be received three days after the seller accepts your loan application. As the name implies, this document is supposed to give you a reasonable estimate of the loan terms and the settlement charges.
You'll receive the HUD-1 at the closing table. This document will offer an itemized list of every charge and credit, including escrow fees, title insurance, loan origination fees, attorney fees, rate lock fees, and more.
Have a talk with your broker or real estate agent on whether you can review the GFE and HUD-1 together. This is to make sure that the final cost is in line to expectations established by the GFE. Remember that you may not receive the HUD-1 until you're at the closing table, so you'll need to make prior arrangements with your mortgage broker.
How long will my rate lock, and what's the maximum cap?
You will get a "fixed" interest rate (such as three, or five, or seven) if you take out an adjustable-rate mortgage (ARM). But after that, your rate may change.
However, each ARM will have a "cap" on that adjustment - meaning that the rate can adjust only a limited number of times, at a limited rate. Your broker should be able to clarify these limits and guidelines but you also have to check if your budget allows you to go for higher rates.
