When you sit down to discuss your financing options for the purchase of a property, you can quickly get lost in the verbiage and minutia of finance. Here are some things you need to make sure you address.
First and foremost, it is important to understand something about trying to get financing. The representative for a bank or other lender is interested in getting you as a client, not necessarily getting you the best deal. If you want someone to hunt for the best deal for you, you need to speak with an independent mortgage broker. Regardless, a bank rep is going to be sizing you up as a potential customer, not determining the cheapest possible financing package for you. Given this somewhat cynical, but true, view, you need to make sure you address some key points when you speak with them.
1. Points – Points can be a killer if you are not prepared for them. Lenders make money on points as nearly pure profit. They want to charge them if at all possible. A point represents one percent of the total loan value. When discussing their various loan packages, find out if they expect you to pay points. Try to find a lender that does not.
2. Prepayment Penalties – Most lenders use teaser rates to get you into a loan. In practical terms, this means the payments for the first few years are low. After that, they bump up to less attractive amounts. You might want to refinance at that point, but the lender might slip in some expensive prepayment penalties. Always avoid these whenever possible, so make sure to ask about them.
3. Down Payment – Find out the lender requirements on down payments. Many just spit out a 20 percent down payment. Others will require less, from 10 percent on down. Depending on your finances, you usually will want to find a lower down payment amount. Regardless, just make sure you clearly understand what is expected from you.
4. Fees – Think banks charge you incessantly for using your bank account? Those fees are nothing compared to what they will hit you with on a mortgage. Get an estimate of the fees and exactly what “Services” you will be charged for. You don’t want to be rushing around at the last moment trying to come up with cash to pay them.
5. Monthly Payments – This may sound obvious, but you need to get an estimate of the monthly payments for the loan. You also need to ask what exactly is included in that payment amount. Does it include property tax payments? How about private mortgage insurance? You really need to know the total payment you have to make, not just the amount due on the basic loan.
These represent the major points you need to address with a lender rep. Obviously, each situation is different, so give some thought to information you need for your situation before going in. Gaining as much information as possible is the key to getting the best loan.
Sergio Haros is with Great Western Mortgage - providing San Diego mortgage loans .