When buying La Cañada real estate, securing financing will be one of your main concerns. Here’s what to ask your mortgage lender before signing on the dotted line.
Do you offer pre-approval, prequalification, or both?
First-time homebuyers may not be aware that preapproval and prequalification are different processes:
- During the pre-approval process, the lender will request documentation to verify your income, assets, and credit score. These documents typically include bank statements, income tax returns, and W-2s. This allows the lender to provide an accurate mortgage loan amount.
- During prequalification, the lender will ask questions about the borrower’s income, assets, and credit score in order to provide an estimate of how much they can borrow. However, the lender will stop short of verifying any of the information. This means that the estimate during prequalification may be inaccurate if you give the lender incomplete or incorrect information.
What are the fees and payments involved?
Upon verifying your financial capability, the lender will provide an estimated cost of your monthly payments. They will break down all of the expenses involved, including closing costs, interest rate, property taxes, and additional fees. They will also determine how much you’ll need for down payment.
What kind of mortgage terms do you offer?
There are multiple mortgage products and programs to suit all kinds of homebuyers. It’s important to discuss your options with your lender in order to decide which ones you’re eligible for and which ones are most appropriate for your needs.
Some of the most common mortgage types include:
- Fixed-rate mortgages (FRMs) are 15, 20, or 30-year conventional fixed-rate loans with a longer amortization period and therefore lower monthly payments. Because the rates are fixed, your interest rate will remain predictable throughout the life cycle of your home loan. However, the longer the amortization period, the more you’ll pay in interest.
- Adjustable rate mortgages (ARMs) have adjustable interest rates that can change over the life cycle of your loan. This means that your interest rate will go up or down each month as the market fluctuates once the fixed rate period ends. However, there are caps on ARMs, which place a limit to the amount to which your interest rate and monthly payments can increase.
- VA Loansare backed by the Department of Veteran Affairs and therefore have lower interest rates with no down payments required. As the name suggests, only veterans, active service members, and surviving spouses are eligible for this mortgage program.
Do you offer mortgage or discount points?
Mortgage points refer to the optional fee borrowers pay at closing in exchange for a lower interest rate and in effect save on the overall cost of their home loan. Each mortgage point is equivalent to 1% of the total loan amount. Ask your lender when to buy mortgage points and whether there’s a maximum number of points you can buy.
Will I need an escrow account?
The escrow account is a savings account for insurance premiums and prepaid property taxes. Escrow accounts are often established at closing. These accounts are typically required for government-backed loans and optional for conventional mortgage products.
If the mortgage program of your choice requires you to open an escrow account, ask the lender about your options for paying for shortages and whether you can get refunds for overpayment. Ask them how much money you’ll need in escrow.
Do you have a mortgage rate lock?
Rate locks are agreements in which the interest rate stays the same until closing regardless of market fluctuations to keep loan costs predictable. This gives you more time and flexibility when searching for a suitable home. Ask your lender if they offer rate locks and how long the rate lock stays valid. You can also ask whether this is a good time to lock your rate.
Can I buy a home without including my spouse in the loan application?
California is a community property state, which means that all assets you acquire during the marriage, including real estate, are owned by both spouses. If you wish toleave your spouse off the mortgage, you should be able to do so in California.
If you’re applying for a VA loan, the lender will factor your spouse’s debts into your loan application. If your spouse has considerable debt, their debt can potentially increase your debt-to-income ratio (DTI), since they won’t be adding their income to monthly payments if they’re left off the mortgage. However, if your spouse has a low credit score, leaving them out of the loan application might be a better idea. Talk to the lender about your options.
Contact me, Kathy Seuylemezian of Imuragent at 818.949.5205 and kathy(at)imuragent(dotted)com for access to La Cañada listings and real estate information. I’m here to make the homebuying process faster and less stressful for buyers.