When you are thinking about buying a home, you need to start shopping for a lender before you start shopping for a house.  You need to get information from the lender about how much home you can afford before you look at any houses.  Here’s how to shop and a few of the questions to ask a lender:

  • Are both fixed-rate and adjustable mortgage loans available?

  • What is the interest rate?

  • What are the “points”?

  • How long can I “lock-in” the financing at the current interest rate?

  • What are the other fees a lender may charge me in conjunction with my loan?

  • Are funds for a second mortgage available?

  • On adjustable loans:
    • How often will the interest rate be adjusted?
    • Is there a maximum limit on each rate change?
    • How often will the monthly payment be adjusted?
    • Is there a ceiling on payment adjustments?
    • Can the term of the loan be extended?
  • Is there a pre-payment penalty clause?  This involves extra charges for paying off the loan before maturity.  About 80% of all loans in the United States are paid off early.
  • Is there an open-end clause?  This clause in a mortgage allows you to borrow in the future for home improvements or other purposes, up to the amount of principal you’ve paid off. 
  • What is the “grace” period?  How late can a monthly payment be made before a late charge is assessed?  What will happen if a payment is missed? 
  • If you sell your house, will the new buyer be able to assume your mortgage at the same interest rate?
  • Do you have to pay “points” to get your new mortgage?  Usually lenders charge points for the cost of giving you a mortgage loan.  A “point” is 1% of the loan. 

  • Will the lender require mortgage insurance?