Bottom Line Up Front
- Your lender will preapprove you for a specific loan amount, based on your income, assets, credit score and debts.
- A mortgage qualification calculator can help you determine how much home you can afford.
- At Navy Federal Credit Union, you can lock your loan rate for up to 60 days at no additional cost.
Whether it’s your first home or your next home, house hunting is exciting. But before you start looking at properties, pause for a moment and give yourself some time to think about your future financial and housing needs.
According to data from the National Association of Realtors® , homeowners stay in their homes an average of 8 years before moving. Since you and your mortgage will probably be together for some time, you’ll want to fully understand the ins and outs of how it works.
10 Questions to Ask Your Lender Before Purchasing a New Home:
- What can I comfortably afford?
Your lender will preapprove you for a specific loan amount based on an analysis of your creditworthiness, income, assets and debts. When discussing what’s comfortable for you, be sure to consider all the home’s expenses, including taxes, homeowners insurance, any homeowners association dues, utility costs and maintenance. A good rule of thumb: Keep your total housing payment, including taxes and insurance, below 28 percent of your gross monthly income (the amount of your paycheck before taxes are taken out). Using a mortgage qualification calculator can help you determine how much you can afford.
- What loans do I qualify for?
Your lender will talk with you about your options, each with its own pros and cons. With a conventional fixed-rate mortgage, your payment will stay the same over the life of the loan. An adjustable-rate mortgage (ARM) has a variable rate that may adjust up or down after the initial fixed-rate period expires. For example, with a 5/5 ARM, your monthly payment can change after 5 years. Some home loans, like VA loans, may not require a down payment. Ask your lender about the mortgages they offer and the requirements of each.
- What’s the minimum down payment?
Your lender can help you determine if you qualify for loans, such as VA loans, that offer options for a low or no down payment. A higher down payment, however, will lower your monthly payments and help you secure a lower interest rate. Use a down payment calculator to compare different down payment scenarios.
- What’s PMI? Do I have to pay it?
Private mortgage insurance, or PMI, is sometimes required when the down payment is less than 20 percent of the home’s sale price. Exceptions include VA loans and some other special mortgage options, like most of Navy Federal Credit Union’s mortgage products. Learn more about PMI and how it can be eliminated when equity reaches a certain percentage of the appraised value.
- What’s my interest rate?
The interest rate has a direct impact on your monthly payment—the higher the interest rate, the higher your payment. To compare lenders, ask for the annual percentage rate (APR) of the mortgage interest, which includes the lender’s fees.
- What will my monthly payment be?
When you’re shopping for a home, your lender can run the numbers to estimate your monthly payment for different properties based on the purchase price, the down payment amount and your interest rate. You can also use a monthly mortgage payment calculator to estimate your monthly payment and see how much interest you’ll pay over the life of the loan.
- What are the closing costs?
Some up-front costs may be due at closing, such as origination and discount fees, an appraisal, document preparation, title insurance, a home inspection and other fees. A closing cost calculator can give you a ballpark estimate of closing costs, which typically run 2% to 5% of the loan amount. Review your loan estimate for an itemized list of estimated closing costs.
- Is my interest rate guaranteed? When does that happen?
Interest rates can fluctuate between the time you submit your loan application and when you go to closing. To prevent your rate from changing, you can lock it in for a specified period of time, typically 30 days. At Navy Federal Credit Union, you can lock in a rate for up to 60 days at no additional cost.
- Will the monthly payment include taxes and homeowners insurance?
For some loans, you may have the option of paying property taxes and insurance payments on your own or having it included in your payment. The latter option, called escrow, means the amount you owe for the year is divided into 12 parts and added to your payment each month. Your financial institution then makes these payments when they’re due out of the escrow account.
- How long will the closing process take?
It’s important to make sure there’s enough time to get your financing in order when making an offer and setting a closing date. It may take anywhere from 30 to 60 days to complete all the steps involved in securing financing and closing on the loan. Talk with your loan officer early in the process to better understand when you can expect to close.
Have More Questions?
Start your home-buying journey with Navy Federal Credit Union. We’re here every step of the way to help you purchase and finance your next home with confidence.