Questions to Ask a Home Mortgage Lender When Buying a Home on Kauai
If you are buying a Kauai home and are searching for an honest and reliable mortgage broker who will give you the best terms and conditions, then there are several questions you should have answered before you commit to any lender.
If you are unable to get clear answers to your questions then you should continue shopping around until you find a mortgage broker that will provide you with the information you need to make an informed choice about this significant step in purchasing a Kauai home.
Questions To Ask a Potential Lender
The first question you will likely want to ask a mortgage broker is what type of loan is best for your situation. If they are a reputable lender they will inquire about the details of your situation so they can determine what type of loan will be best for you.
A lender who tells you what type of loan you should get without even knowing the details of your financial situation is likely not looking out for your best interests.
Evaluating Mortgage Loan Options
Once the mortgage broker does start suggesting options, go through the pros and cons of the various types of loans that may be suitable for your situation. Evaluate the advantages and disadvantages of each type of loan.
Work through the numbers for an adjustable-rate loan as well as a fixed-rate loan and consider these loans for your financial situation while considering all of the many variables involved.
For example: how long do you plan to live in the house; how long do you plan on owning the house; what is your annual income; and how secure is that income? Also important to evaluate are the tax advantages of particular types of loans. Ask the mortgage lender if there are any other important factors to consider when securing a mortgage loan.
In addition to evaluating the standard types of mortgage loans available, you should also have at least a brief discussion about some other options such as interest-only loans or negative-amortization loans. If you have a unique situation one of these loan options may be best for you.
Evaluate Mortgage Loans Using Annual Percentage Rate (APR)
A loan’s Annual Percentage Rate is calculated by including all of the costs of the loan including the lender fees as well as the interest rate and then dividing the total amount of money required by the term of the loan.
The APR calculation can be fairly complex and some lenders do not calculate it properly so make sure a qualified and disinterested third party evaluates the numbers.
Because an adjustable-rate loan does not have a predetermined interest rate for the full term of the loan, the APR cannot be accurately computed in advance. For adjustable-rate loans find out how often the loan’s interest rate will be adjusted, as well as the maximum amount of the annual adjustment and the highest rate, or cap, of the loan.
Discount Points and Origination Fees
Ask the lender about the discount points and origination fees. One point is equal to one percent of the amount of the loan. Thus three points on a $200,000 loan costs $6,000. Origination fees may be charged by the lender in addition to points. Get clear answers about these items in advance so there are no surprises.
Points may be used to buy down (lower) the interest rate on the loan. In other words, the more points you pay then the lower interest rate you will get on the loan.
Find out what your options are so you can make an informed decision in your best interest for the long term. Even if the seller pays some of the points or all of the points they are tax deductible.
Evaluating All of the Costs of the Loan – The Good Faith Estimate
Develop a complete list detailing all of the costs of the mortgage loan including points and origination fees as well as costs that will be incurred by third-party vendors such as home appraisal fees, credit report fees, fees related to the title, home inspection fees (e.g., pest inspection), escrow fees, recording fees and taxes.
A mortgage lender is required by federal law to provide you with a Good Faith Estimate of all of these loan costs within three days of when you apply for the loan. However the lender is not required to guarantee this estimate so it can not be fully relied upon as a true reflection of your actual costs. Try to find a lender who will guarantee their Good Faith Estimate.
Loan Rate Locks
Ask the lender if they will lock in the interest rate at the time of your application. Since interest rates can change at any time, it is in your best interest to lock in the stated rate if you think there is a chance that rates may rise. Locking in the loan rate may cost up to one point so inquire about this as you do your research on the mortgage lender’s terms.
Also ask if locking in the rate locks in all of the other loan costs, and how long the loan lock will last, and if a written commitment stating the terms of the loan lock will be provided. If you do not lock in your loan rate then you will pay the interest rate and the number of points that prevails on the day the loan is funded.
Be Aware of any Prepayment Penalties
Ask if the mortgage loan has a prepayment penalty. If so, what are the details of this provision including the amount of the penalty and how long the prepayment penalty clause remains in effect.
Some lenders enforce a prepayment penalty just during the first two to five years of the loan. It is always in your best interest to maintain flexibility and preserve your right to pay off a loan early because even if you don’t plan on it now, you never know if things might change in the future.
Some lenders charge an additional six months of interest if the mortgage loan is paid off before the end of the loan’s term. This may include refinancing which pays off the original mortgage loan. Also ask if there would be a prepayment penalty if you refinanced through the same lender at a later date.
Inquire About the Underwriting of the Refinance Loan
Ask potential lenders if they handle their own underwriting in-house. A loan underwriter reviews the mortgage loan and sets the conditions of approval or rejection of the loan application.
If applicable to your situation, ask the lender about how they deal with Federal Housing Administration (FHA) and Veterans Administration (VA) loans.
These types of mortgage loans often take longer to process though some lenders meet the U.S. government’s requirements that allows the lender to either automatically approve or reject the loan application without sending the information to the FHA or VA.
Kauai Real Estate Services and Luxury Vacation Accommodations
If you are considering buying a home on Kauai you can see some of the island’s best real estate deals by browsing through the Coldwell Banker Bali Hai Realty Kauai Real Estate Galleries, or you can use the Map-Based Kauai Home Search.
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Also please feel free to give us a call. The Bali Hai Realty staff will be happy to help you find the perfect Kauai vacation rental or assist you in the process of buying or selling a Kauai home.