When you talk to a mortgage broker or other lender, you should request a good faith estimate. This is an estimate of your closing costs, prepaid escrow and interest rate. It's a good way to compare one loan and lender to another. Keep in mind that some of the fees and the interest rate may be negotiable. Also keep in mind that the interest rate will vary until you are under contract on a home and lock the interest rate through your lender. Until locked, the interest rates can fluctuate from day to day and sometimes hour to hour.
If you compare two different types of loans there may be other costs to consider, like comparing a fixed rate to an adjustable rate mortgage. The rate and payment on the adjustable rate loan could go up over time.
A major consideration when choosing a lender is performance and reputation. You often get what you pay for. Just because one lender has slightly lower fees, doesn't necessarily mean they are the best choice. A good way to determine performance is by getting a lender referral from a friend or your Salt Lake City Realtor®.
Discuss your needs with the lender: Fixed payment, little down, low payment for now....
The lender will tell you how much you qualify for, but only you know how much of a monthly payment you are comfortable with. Set your own limits.
Should you pay down the interest rate with points? A point is a percent of the loan amount, to buy the interest rate down. If you are considering paying points, calculate how long it will take to recoup the cost. Also consider how long you think youll have that loan for. Where are interest rates now, will you refinance later?
Points add to your closing costs. If you have extra money, it might be better to increase your down payment or maybe you should have a nest egg for unexpected expenses or to fix your new home up. Then again, for some people, paying points makes sense to get the lower rate.
10 Questions to Ask Your Lender
- What are the most popular mortgages you offer? Why are they so popular?
- Which type of mortgage plan do you think would be best for me? Why?
- Are your rates, terms, fees, and closing costs negotiable?
- Will I have to buy private mortgage insurance? If so, how much will it cost, and how long will it be required? (NOTE: Private mortgage insurance is usually required if your down payment is less than 20 percent. However, most lenders will let you discontinue PMI when you've acquired a certain amount of equity by paying down the loan.)
- Who will service the loan your bank or another company?
- What escrow requirements do you have?
- How long will this loan be in a lock-in period (in other words, the time that the quoted interest rate will be honored)? Will I be able to obtain a lower rate if it drops during this period?
- How long will the loan approval process take?
- How long will it take to close the loan?
- Are there any charges or penalties for prepaying the loan?
What is APR?
When you go to the closing to buy your Salt Lake home or condo, within the documentation is the Federal Truth in Lending form. On this statement in bold print is the effective APR (Annual Percentage Rate). The Federal Truth in Lending Act requires that every consumer loan agreement must disclose the APR in large bold type.
The effective APR is the effective cost of credit in consumer loans and mortgages expressed as a percentage rate. The annual percentage rate is the finance charge the borrower actually pays, including loan interest, points, and origination fees. The closer the APR is to the interest rate that you locked in at, the better deal you got.
You can also ask for a truth in lending statement at the time of application, but keep in mind that both the interest rate and APR can fluctuate until you lock your interest rate.
Calculating the APR on a fixed rate mortgage is fairly straight forward, but on adjustable rate mortgages, the APR is more complicated because the rate can adjust.
Also, on a FHA loans the APR is generally higher because the mortgage insurance is part of the closing costs and is added into the APR. On conventional loans the mortgage insurance is paid as a monthly fee instead and is not added to the APR.
If your plan is to move from one home to another, just putting your home on the market isn’t enough. Your home will need to be ready to show and you’ll need a strategy to accomplish the sale and purchase of another home in a reasonable time frame.
With 10 years selling homes in metro Salt Lake and 20 years in the real estate business, I have many strategies and an in depth understanding of what it takes to help you sell and buy another home. Call or email me if you’d like to take advantage of this opportunity!
Contact SLCHomeBuyer and Kevin Coyle