While going through the mortgage process there are many questions that you will have for your lender. Below are some of the more overlooked parts of the process that are equally important:
Annual Percentage Rate (APR): While the interest rate is used to calculate the monthly payments it does not reflect the overall cost of borrowing which is why the APR is important to discuss. The annual percentage rate is a better representation of what the loan is costing you because the APR factors in other costs associated with the loan beyond the interest rate. Some of these costs may include origination fees, mortgage insurance, closing costs, and more.
Escrow Taxes and Insurance: Ask your lender if an escrow account is required. Some borrowers use escrow accounts to ensure that insurance premiums and taxes will be paid on time. Money is deposited into the escrow account at closing and portions of your monthly mortgage payment are also deposited into the account. When the taxes and insurance payments are due, the lender pays them from your escrow account. There are several factors that may determine whether you need to escrow, for example, if the down payment is under 20% or there is minimal cash flow.
Prepayment Penalty: While not common anymore in the industry you may want to double check if your mortgage has a prepayment penalty. This is an agreement you must sign that binds you to pay a penalty if you prepay the mortgage before a specific time period. Many loans don’t allow prepayment penalties but it doesn’t hurt to double check with your lender.
What Not to Do Before Closing: While your loan is working its way through the mortgage approval process there are certain aspects of your financial status that you should be aware of. Lenders will be double checking your employment status and credit score among other things to ensure your financial stability and your ability to repay the loan. During this process hold off on making any large purchases, moving money around in your bank accounts, or making large deposits. These things could all put a red flag on your file which will hold up the process and could possibly hurt your chances at getting a loan.
Servicing: Often times homebuyers, especially first time buyers, may not realize that their loan will be sold and serviced to someone else. This means you may not be sending your mortgage payment to the lender that originated your loan. This is a common practice in the industry and you will always be notified of these changes.