Questions to Ask
I. Questions Before Looking for a Mortgage Loan Before you decide to look for a loan – and especially a mortgage loan – you should ask yourself:
- Do I really need a loan?
- Why am I seeking a loan now? What goals am I trying to accomplish?
- Can I accomplish these goals in some other way?
- Am I being pressured by a broker, lender, telemarketer, friend or relative to obtain debt that I don't need of can't afford?
- If I do need a loan, is it necessary to put my house at risk to get it?
- Can I get a personal loan instead?
- Can I get a loan secured by personal property (stocks, insurance, etc.) and not buy my home?
- How much money do I realistically need?
- Am I borrowing only as much as I really need?
- If I am planning needed remodeling or repair work, have I obtained several estimates from reliable contractors?
» Beware of estimates from contractors who offer to arrange financing - If I plan to consolidate credit card or other debt, how much must I pay off, and under what terms?
- Do I have a plan to avoid accumulating new debt in the future?
- How much will this loan actually cost me?
- What is the total amount of money that I will be borrowing?
- How much of that will go to paying off:
· My current mortgage
· My other current debt
· Loan fees and other closing costs
- Is this number high in relation to the amount of money I am planning to borrow?
- Is it too high to make sense?
- Can I afford this loan?
(If a loan is needed but not affordable, get counseling and consider other options) Not being able to afford your mortgage payment is a big problem that can often be prevented before you enter into the loan. Make sure you will really have enough money each month to afford your initial payment AS WELL AS any projected increase in your payment resulting from rate adjustments or triggering of payment changes in connection with interest-only loans and payment option ARMS. Be sure you have enough money after paying your mortgage payment to pay all of your other expenses and to save for those unexpected expenses which occur from time to time. A housing counselor or financial adviser can help you to make this decision.
II. Questions During the Shopping Process Both while you are looking for a loan from several different lenders and after you've actually applied, you should ask yourself the following.
- Have I shopped around enough?
- How many lenders have I contacted?
» If you've only 'shopped' one lender, seriously consider looking at several others. - How many lenders have given me firm offers?
- Have I been able to compare the offers I have received to see which is the best deal?
- Am I working with the first broker or lender I've spoken to, or have I really looked around?
»Be especially cautious if the lender contacted you, rather than you contacted the lender.
- How many lenders have I contacted?
- Does the deal sound too good to be true?
»If it sounds too good, back away. - Is the deal changing? Did I receive a promise of reasonable interest rate, monthly payments, type of loan, etc and now the promise has changed? If so, go elsewhere.
- Do I know and understand all of the proposed TERMS of my loan?
- APR and interest rate
- Scheduled length of loan? - 15 year, 30 year, shorter, etc.
- Will my loan be completely paid off at the end of the term or will I owe a large amount, called a balloon payment?
- What type of loan I will be getting?--fixed rate, adjustable rate, etc.
- What are my monthly payments?
- Will they remain the same or can they increase?
- Are my insurance and taxes included in the monthly payment amount or quoted as monthly rates?
- Will they be paid through my mortgage payment?
- How much am I paying the broker and/or lender for the loan? This includes points, application fees, loan origination fees, etc.
- How much am I paying others for the loan? For example: appraisers, lawyers, title companies, taxes, 'junk' fees
- Will I have to pay a prepayment penalty if I want to refinance this loan? How much will it be and during what period of time will I owe it?
- Does it seem as if my lender/broker is trying to avoid directly answering any of the above questions?
- Can I afford this or any other loan?
- Do I want to change my mind about getting a loan?
Don't let high pressure sales tactics or other pressures force you into taking out an unwanted loan
III. At Settlement/ClosingWhat questions should you ask during the loan settlement? Review all loan documents closely.
- Do I understand all the terms of my loan?
» Is the title company/settlement agent dodging any of my questions?
» Are they rushing me through the settlement? If so, ask them to slow down and explain things clearly. - Is anything different than what was promised to me?
- Are the numbers on the loan documents different from the promises made about the loan terms?
» (If so, don't sign) - Are any of the loan terms different from those promised to me?
» (If so, don't sign) - Am I paying more money for closing costs or lender fees than I agreed to pay?
» (If so, don't sign) - Are there any blanks or uncompleted portions of documents?
» (If so, don't sign)
- Are the numbers on the loan documents different from the promises made about the loan terms?
- Can I afford this loan?
» (If not, don't sign) - Did I receive copies of all of the documents that I signed before leaving the closing?
» (Don't leave without them)
IV. After Entering Into A Mortgage Loan What questions should you ask after the loan has closed?
- Have I changed my mind and no longer want the loan?
If not, and it's still within 3 days after settlement, you have an absolute right to cancel in writing, unless the loan is for the purchase of your home. - Is this the loan I agreed to?
If not, and it's still within 3 days after settlement, you have an absolute right to cancel in writing, unless the loan is for the purchase of your home. If not, but it's more than 3 days after settlement or if the loan is for a home purchase, you may still be able to cancel-contact a real estate lawyer, legal services lawyer, etc. - Did I receive all of my loan documents at settlement, including 2 copies of the Notice of Right to Cancel?
»If not, you may be able to cancel - Has anything changed from the deal originally entered into?
- Are the monthly payments charged higher than what I originally agreed to?
- Is the lender charging late fees when I send payments in on time?
- Has there been any unusual or irregular in my dealings with the lender?
For example, if you discover that the loan has a balloon and you were promised a fully amortizing loan.
Consider contacting a lawyer, consumer advocate, attorney general, etc.