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Mortgage Loan Rates: 5 Questions You Should Ask

Buying a home is one of the most exciting times of your life, but don’t get ahead of yourself. It’s important to make sure you fully understand what’s happening about the mortgage loan rates before signing.

Otherwise, you could wind up with a loan that has outrageous terms, locking you in for years. Mortgage loan rates are fixed rates on mortgage loans where the interest rate on the note remains the same through the term of the loan, as opposed to loans where the mortgage loan rates may adjust or “float”.

Mortgage Loan Rate

As a result, payment amounts and the duration of the mortgage loan are fixed and the person who is responsible for paying back the mortgage loan benefits from a consistent, single payment and the ability to plan a budget based on this fixed cost.

Here are a few questions to ask your mortgage loan officer about the mortgage loan rates when you’re comparing options.

What Are the Loan’s Interest Rate and Annual Percentage Rate (APR)?

The mortgage loan rate and APR of a mortgage loan are related, but they’re still different concepts. Ask your mortgage officer whether your loan will be an adjustable-rate loan or a fixed one. They’ll show how much interest will be on the principal, affecting the monthly payment. Once you’ve seen the basic interest rate, you can look at the annual percentage rate or APR.

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A loan’s APR is similar to its interest rate, but it includes any fees charged on it, too. As a result, it’s usually a bit higher than the interest rate, even if it’s not by much. You can compare the APR between lenders to figure out which one charges the most fees.

A higher Annual Percentage Rate loan has more fees if you’ve received quotes from two lenders with the same mortgage loan rate. For example, if one is 4% and another is 4.5% Annual Percentage Rate, the larger one is charging the most.

Which Kind of Loan Would Work Best for You?

Generally, you can pick from several types of mortgages, but some are more common than others. The two most common types would be Conventional and FHA, although more are out there. The government doesn’t guarantee conventional loans, so they require more down usually. If you don’t put down at least 20%, you’ll need to pay for PMI on the mortgage as well.

FHA loans are usually best if your credit score is low or if you’ve never owned a home. Since they have lenient standards, qualifying for them isn’t as hard as a conventional. Plus, as long as your credit score is above 580, you can put down as little as 3.5% to get one.

How Much Will You Pay for Private Mortgage Insurance?

PMI is charged when you haven’t put down enough when applying for the mortgage. It’ll always be the same amount on an FHA loan, regardless of your credit score. Conventional loans usually give you a lower payment the higher your credit score.

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You must put down 20% to qualify for a conventional mortgage without PMI on it. But, you only need to put down 10% if you’d like to get an FHA loan without it, making them easier to receive. Keep in mind that conventional loans usually drop the PMI once you’ve built enough equity in the home. However, you’ll be stuck with it on an FHA loan if you didn’t put down enough at first.

What Fees Will Be Charged on the Loan?

You’ll, most of the time, pay an origination fee that’s a percentage of the loan’s amount. Ask the loan officer what kind of lender fees you’ll need to pay as part of the loan. They’ll know what you mean by phrasing it like this, and it won’t be hard to get the right info.

Typically, these fees are part of the loan’s APR, so you can look there for guidance. Don’t accept a loan with outrageous fees since they can inflate costs a ton. Also, ask the mortgage officer whether they’ve included other costs in the estimate. Appraisal fees, title costs, and other fees can all add to the loan’s cost, inflating it a bunch.

How Long Will It Take to Close on the Loan?

Once you’ve received conditional approval, that doesn’t mean you’re clear to go. Ask how long to close after conditional approval when speaking to the loan officer. Most of the time, it only takes a few weeks to go from conditional approval to clear-to-close.

The loan officer will ask you to provide proof of income, and you should give it to them to speed things up. Things tend to move along relatively fast after the documents are in their hands.

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What Should Everyone Ask Their Mortgage Loan Officer?

Seeing the words “conditional approval” can send excitement shooting through the body. Yet, you’re not quite at the finish line, even though you’re close. Always ask your lender to explain the underwriting process of the mortgage loan rates so that you know what to expect. You’ll feel confident once you’re making an offer on the house.

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