Buying property for the first time can deliver many challenges along the way.
Finding a lender offering a competitively affordable mortgage is arguably one of the hardest. Home loans are tricky, with many terms and conditions that dictate your monthly financial commitment. If you select the wrong deal, it can cost you thousands of dollars.
Try using this list of key questions to ask a lending institution or mortgage broker to help navigate the process.
Your budget
Determine how much a bank or mortgage business is prepared to loan you. You want to be crystal clear on this before beginning your property search.
Loan terms
Understand your alternatives in terms of the interest rate and the length of the loan. Seek information on the different impact of variable, mixed and split loans. Be aware that if a bank offers you a 30-year loan, that will cost thousands of dollars more in interest than a 25-year term.
Exit terms
Your situation will change over the years, and you may want to exit your loan agreement. Ask about potential financial penalties for ending the arrangement or what happens if you repay your loan early.
Point of principal
Ask how much of the principal you’ll be paying off each month, as this reduces the amount you owe. Much of your monthly repayment services the interest rate component.
What’s mortgage insurance?
If you don’t have a 20% deposit, a lender will ask you to pay for Private Mortgage Insurance (PMI). This policy protects them if you default. It does nothing for you, and it’s expensive. However, it does go away after you’ve achieved 20% equity in your mortgage.
Closing costs
These can be around 3-5% of the value of any property you wish to purchase. Ensure your lender or broker has factored these into your loan application. It would be a disaster to get to the end of the process and find you’ve got no cash for closing costs.
Loan types – You should explore the difference between conventional and government loans issued by bodies such as the Federal Housing Authority and Veterans Affairs. Please note you must meet specific criteria for a government loan.