A mortgage is purchasing the use of money. Like shopping for any other items, you should consider the cost of purchasing the use of this money.
For most people, the acquisition of a home involves getting a mortgage. Prospective borrowers check the interest rate on the loan, but they often fail to check all the details of the loan.
Part of your inquiry should include considering how many points you will be paying on your loan and any other charges associated with the loan. A point is 1% of the amount you are borrowing. For example, if you are borrowing $300,000 one point is equal to $3,000. Different lenders may charge different points. To effectively compare interests and charges from different lenders, you should ask for the annual percentage rate (APR) of your loan. This is one means by which you can compare the cost of borrowing money from different lenders. The APR includes not only the interest you will pay, but also any lender's fees which may be charged as part of the cost of the loan.
You should ask the lender to provide a written HUD1 form. This will give you a good faith estimate of the closing costs and along with the APR and also allows you to compare charges on the cost for your loan.
A prepayment penalty is an additional charge if you pay the loan off early. A prepayment penalty is typically not charged these days, but prepayment penalties are still a possibility, especially if you are assuming an older loan from someone else. You should check for any prepayment penalty, because it can be significant and may affect whether you can afford to sell your home. The prepayment penalty is not part of the APR.
The cost of your loan is roughly related to the amount of money that you borrow to purchase your property. The more money you borrow typically, the higher your cost of borrowing. If you put less money down, you may be required to pay private mortgage insurance until the amount of your equity reaches a specific level. Equity is the market value of the property less all amounts owed against the property.
In applying for a loan, your credit risk will be evaluated. Before applying for a loan, you may wish to consider requesting a copy of your credit report. Recent laws provide that you are now able to secure one free copy of your credit report each year. If there are credit problems or errors, you should correct those problems before applying for a loan. This will enhance your prospects of securing the loan, enhance your credit score and ultimately lower the cost of your loan.
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