The nation’s economic recovery is continuing, slowly but surely, and one of the prime indicators of that recovery is the current state of the British housing market. Home sales are on the rise, and according to the Bank of England mortgage approvals are at a six month high. That’s definitely good news for the housing industry, and the economy in general. But it is also good news for first-time home buyers who may feel the time has finally come to enter the housing market. However, applying for a mortgage can be confusing, particularly for first time buyers with little experience of the process. We’ve put together a list of 10 key questions that every prospective home buyer should ask their lender before they take out a mortgage on a new home.
1 What Do You Need to Qualify for a Loan?
To qualify for any loan, the lender will need to know your employment history, current income, assets, liabilities, and credit history. Every lender has its own standards by which to evaluate this information, so you musty discuss your qualifications up-front.
2 What Documentation Will You Need?
Most lenders will want to see proof of income and assets. They may also want to see a full breakdown of any financial liabilities or investments that may affect your ability to repay the loan. If your credit history is particularly good, your lender may offer a “no-documentation” loan. However, you will most likely pay a premium for a no-documentation loan, so be prepared to make all necessary paperwork available to your lender.
3 What is the Minimum Down Payment?
The terms of your mortgage will be determined by a number of factors, one of which is the amount of your down payment. The average deposit on a new home is between 3% and 20% of the selling price. Keep in mind, the larger your down payment the more leverage you have when negotiating interest rates and loan terms.
4 What is the Interest Rate?
It is important to understand the total cost of your loan before you agree to any mortgage. In order to determine what you will be paying over the full term of your mortgage, you’ll need to know the interest rate that will be applied to the principle.
Your lender may give you quotes on a fixed rate, or a variable rate, however that is only part of the equation. When asking your lender about interest rates, be sure they quote the annual percentage rate (APR) of your mortgage interest. The APR includes the actual interest on the loan, plus any fees and points. This is important, because the simple interest can be deceiving. Understanding the APR should show you the full cost of your mortgage.
5 Will You Be Paying any Points?
Many lenders charge discount and/or origination points in order to lower interest rates. It is important to understand what type of points you will be paying, and how they affect the total cost of your mortgage.
6 What are the Closing Costs?
Lenders charge certain fees for preparing a mortgage, and these can have a direct impact on the cost of your loan. Any reputable lender should explain these fees up-front, providing an estimate of the closing costs associated with your mortgage.
7 When Can You Lock the Interest Rate?
Interest rates are bound to change between the time you apply for your mortgage and the final closing. If interest rates are expected to rise, ask your lender when you can lock the rate. You should also ask if there are any applicable fees involved when locking the interest rate.
8 Are there any Prepayment Penalties?
Many mortgages come bundled with prepayment penalties, so it is important to ask about these penalties before you sign any loan agreement. Penalties typically range from 1% of the total loan to an amount equal to six months of interest. There are different types of prepayment penalties. For example, there may be penalties for refinancing or selling your home. Ask your lender what prepayment penalties apply to your loan, and how those penalties are calculated.
9 How Long Will the Lender Take to Process the Loan?
It can take between two weeks and two months for a mortgage to be approved. It is important to ask your lender how long it will take to process your loan application so you can decide whether or not to pay the additional fees and lock quoted terms and rates.
10 Can Anything Delay or Negate Your Loan Application?
Many things can delay, or even prevent, the approval of your loan. You need to discuss this with your lender during the initial loan application, and inform them of any potential changes to your employment status, debt profile, or marital status. Any of these can stall your mortgage application, so your lender needs to be informed up-front to prevent any potential delays or impediments.
The British economy is slowly showing signs of recovery, and consumer confidence is the strongest it’s been in years. That confidence is helping spur a growing demand for new mortgages. With interest rates predicted to remain low for the foreseeable future, now may be the perfect time for first-time buyers to enter the housing market. If you’re considering a new home, remember to ask your lender these 10 important questions to help secure a mortgage you feel comfortable with.