Four Questions for Potential Lenders
When you reach the end of your rent to own journey and you're applying for a mortgage, it's hard to know what to question.
For a lot of people, approval in itself is a shock. They don't want to ask questions or push for too many things because they're afraid the lender will revoke the approval.
There are some questions that are obvious, like what's my rate or what are the closing costs, but others aren't so cut and dry. If you're new to the process, you may not realize you should be asking them.
Don't sweat it. Here are four totally okay (and crucial) questions to ask your mortgage lender before your closing date.
These vary lender by lender. Most other questions you can find answers to online. Additionally, questions about closing costs often vary until the point of closing; therefore, it's difficult to get an honest reflection of them for comparison.
In an ideal world, you'd start shopping mortgage lenders early on in your rent to own journey, that way you're not in a rush to accept the offer of the first lender who will approve you.
1. Are There Any First-Time Homebuyer Grants Available to Me?
When you reach out to a lender tell them you want this information up front. Don't let them kick the can down the line because if you do, they'll give you the info once it's too late for you to switch lenders. These grants aren't applicable to all lenders. Sometimes, there are approved lists of lenders you need to go through to receive funding.
Tell your lender exactly what type of down payment you want to give if you get the grant. Otherwise, they'll calculate payments with the lowest possible down payment with the grant, which isn't necessarily what you want.
Remember, for lenders, these grants are a pain. They do a heck of a lot more paperwork and don't get any additional benefit out of it. Don't be afraid to dig in here!
If this lender isn't willing to work with you on providing information, they may be lazy on other aspects of your mortgage that would save you money. You may want to move on.
They will want to make the grant look as unattractive as possible, but take the time to truly consider it the way you plan to do it before making your decision.
2. Who's Paying Taxes?
You'll want to know whether you're paying taxes directly to the government or they're doing it for you. This will affect your monthly payments. If your mortgage is $700 a month and taxes are $300 each month, you'll have a monthly payment of $1,000.
Sometimes, the lender will charge you to set up an escrow account to hold the tax money for you. So, they're charging you to hold on to your money for you, which doesn't really make sense.
Mind you, the actual tax money you're paying regardless. However, if the money is sitting in your savings account it's earning you interest, and you can play with it on month's you need to. If the bank's holding it, they can play with your money to earn more money for themselves instead.
If you feel confident in your money management skills, consider pushing to manage the tax payments yourself. That way you're the only one making money off of this money. Just be sure to have the right amount saved up by the time that the tax bill comes through.
3. Is there a prepayment penalty?
When you pay principal early, you avoid accumulating interest on that money during that time period. Nonetheless, some banks penalize you for doing so.
You want to ensure that the bank you're borrowing from does not. Ask this question upfront so that you have time to shop around for other options.
4. Do you lock in interest rates? Is it free?
Look into how rates have been moving in recent weeks. If they've been going up, you'll want to lock in your rate as soon as you have approval. That way, you won't need to worry about your rate going up between approval time and the closing date.
You'll want to choose a lender that doesn't charge to lock in interest rates.