5. Should my interest rate be “locked”?
A rate lock guarantees you today’s mortgage interest rate for a set period of time, often 30 to 60 days. If interest rates are rising, it’s usually a brilliant idea to lock in your rate. While the current mortgage rate is unlikely to change significantly in a month or two, it is certainly possible.
6. Which mortgage is best for me?
There are various sorts of mortgages to pick from. A conventional mortgage is more challenging to qualify for in terms of credit, but an FHA loan can be more expensive. If you are a veteran, a VA loan may be the best option for you, and if you want to buy a property in a rural region, a USDA mortgage may be the best option for you.
7. What are discount points, and do I need to pay them?
Discount points are funds paid in advance on your mortgage in exchange for a cheaper interest rate. One “point” is equal to 1% of the loan amount. Therefore, one discount point would be $2,000 on a $200,000 mortgage. Discount points are tax-deductible, and if the interest savings over the life of the loan exceed the points paid, it may be worthwhile.
By evaluating the effect of different interest rates on your mortgage, a mortgage calculator can help you assess whether discount points are a good option.
8. Should I seek a term loan for 15 or 30 years?
This is determined by how far you want to push your budget. A 15-year mortgage typically has a lower interest rate than a 30-year mortgage if you can afford the higher monthly payments. You will not only pay off the mortgage faster, but you will also save a significant amount of interest. A 30-year mortgage, on the other hand, will cost less per month, allowing you to purchase a more significant or fancier house or one in a better location.
9. What documents should I collect?
Your lender may request a variety of documents, but in general, be prepared to present all of the following:
• Income verification (tax returns from the previous two years, W-2s, 1099s, and your most recent pay stubs)
• Driver’s license and Social Security card (or alternative ID)
• Evidence of funds to close (and, if not explicit, an explanation of where they came from)
• If some or all of your down payment is a gift, you will need a gift letter from the source of the funds confirming that it is a gift and not a loan.
