Most people, when shopping for a mortgage, usually think only (or at least mostly) about the amount they’ll have to pay each month in mortgage payments. That’s important, of course, but that’s certainly not all there is to it. There are several other considerations that are at least as important. In that vein, here are 4 things to ask your lender in Long Island.
1. What’s the best interest rate you can offer me?
A lot of people simply accept the interest rate their mortgage lender quotes them. But you really should ask your lender in Long Island about the best rate they can offer you. The industry has standard industry-wide interest rates, but those rates fluctuate and differ according to certain other influencing factors. These include your financial history and credit score. So, for example, if you have a high credit score of between 760 and 850, you will be able to get a better rate than someone with a lower score. With that high score, you could get an interest rate of 3.75%, but someone with a credit score of between 620 and 639 would get 4.5%
2. Is it a fixed or adjustable rate?
Another question you need to ask your lender if you are purchasing a house in Long Island is what kind of rate is being offered. Is it fixed or adjustable. Most home buyers today opt for a fixed rate mortgage. This is one where the interest rate remains the same over the life of the loan. An adjustable rate mortgage is a different animal altogether. With an adjustable rate mortgage, the interest rate is fairly low for the first few years and then increases usually) throughout the remainder of the life of the loan. An adjustable rate mortgage can be for a 15-year or a 30-year term.
If you are planning to live in your house for only a few years while the rate is low and do decide to opt for an adjustable rate mortgage, there are some follow-up questions you need to ask, such as:
- How long will the initial low-interest rate period last?
- How often after that is the rate adjusted?
- How do you calculate the adjusted rate?
- What is the rate cap, and exactly how high can my rate go?
3. Will I have to pay for private mortgage insurance?
If you plan to put less than 20% down, then when you ask your lender in Long Island this question, the answer will most likely be “Yes.” With a smaller down payment, you have less of a stake in the home and so present a greater risk to the lender. To hedge their bets with the smaller down payment, your lender will require you to purchase private mortgage insurance to protect their investment in case you default.
The real issue, though, concerns how long you’ll have to pay for private mortgage insurance and whether you can stop at some point. Most conventional loans, require this insurance only until you’ve paid off more than 20% of the loan. But FHA loans require it throughout the entire length of the mortgage. Just be aware that private mortgage insurance can add a significant amount to what you will pay over the long run.
4. What fees will I have to pay?
This is a question you should certainly ask your lender when buying a home in Long Island. Many people do not ask this question only to find half way through the process that once all of the fees are factored in, they cannot really afford the mortgage. There is, for instance, the origination fee, which is taken out of the amount you borrow and expressed as a percentage of the loan value, typically ranging from 1% to 5%. The purpose of this origination fee is to cover the costs of processing the loan. What this means, then, is that because this fee is taken out of the loan, you’ll have to borrow a little more than you thought to cover the sale price of the house. And there are other fees, so be sure to ask.
These are only 4 questions to ask your lender in Long Island – there are many more you should ask to be fully informed. But if you’re a first-time home buyer, you probably don’t know what they are. Your agent can give you some guidance here.