2. How much are the costs of
getting the loan?
When you apply for a loan, you'll get a federally mandated
document called the Good Faith Estimate of Closing Costs. It
estimates how much the lender will charge you for origination
and discount fees, an appraisal, a credit report, document
preparation, title insurance, a pest inspection and myriad other
costs. Compare good faith estimates and especially take note of
the line that reads "Estimated cash at closing." That's an
educated guess of how much you'll have to pay out of your
checkbook to get the loan.
3. How long will it take to
If you're buying a home, how long will it take to break even if
you pay discount points to get a lower rate? If you're
refinancing, how long will it take to recoup the closing costs
from your monthly savings?
In either case, all you have to
do is divide the upfront cost (of discount points if you're
buying a house and of all the closing costs if you're
refinancing) by the monthly savings you would get. That tells
you how many months it will take to break even. If it's going to
take five years to break even but you expect to stay in the
house four more years ...
4. What makes me feel
Bitton says some of her clients insist on paying zero discount
points, while others want to pay a lot of points to get
absolutely the lowest interest rate, "even if it takes four or
five years to break even."
As far as Bitton is concerned,
there often is no right or wrong answer when people ask whether
they should pay discount points or choose a 15-year or 30-year
mortgage. "There's not just an objective, dollars-and-cents
number," Bitton says. "There's also the psychological factor.
What are you going to feel comfortable with?"
She has clients in their 70s and
80s who get 30-year mortgages because that's what makes them
feel comfortable. Some homeowners would rather refinance once
and never have to bother with refinancing again, so they pay a
lot of points for a rock-bottom rate. As a bonus, they have
something to boast about at cocktail parties. Other clients
simply want the lowest possible payments, so they snag an
interest-only, five-year ARM. All understand what they're
getting into and have found their comfort zones.
5. How long should I lock?
Today's refinance boom means that lenders and mortgage service
providers (such as appraisers and title companies) are swamped.
Some banks are taking three weeks to process loans that used to
be processed in 24 to 48 hours. If you want to lock a rate,
follow the broker's or lender's advice on how long you should
lock. You might be told to lock for 45 days or even longer.
6. Will I be able to make the
payments when I include all the monthly mortgage expenses?
Principal and interest are only part of your monthly payment,
notes Rudy Cavazos, spokesman for Money Management
International, a Houston-based credit counseling service with
offices in Texas, Arizona, Illinois and New Mexico. "When you
start adding private mortgage insurance, association fees and
periodic maintenance to the house, it might look like a totally
different picture," he says.
Not to mention property taxes and
homeowner insurance. Cavazos points out that a lot of people
don't find room in their budget to save up for the inevitable
roof repairs, furnace replacement and painting. Then they step
on the debt treadmill to pay for those things.
Cavazos recommends that couples
qualify for a mortgage based on one partner's income. "Consumers
need to focus on the worst-case scenario," he says. "If we lose
one income, will we be able to make a mortgage payment? Many
consumers today are one paycheck away from financial disaster."
He says there has been a recent
influx of couples who seek credit counseling because a spouse
was laid off and the mortgage lender has started foreclosure
7. Is my credit good enough to
get that attractive rate?
The advertised rate isn't necessarily the rate you'll get. If
your credit history is merely OK instead of excellent, you'll be
quoted a higher rate than your chum with flawless credit. To be
more specific, if you have been more than 30 days late with your
mortgage payment anytime in the last couple of years, you are
unlikely to get the best rate. Ditto if you've been more than 30
days late three or four times in the last couple of years on
other types of debt, such as credit cards and auto loans.
"They're not going to turn you
away, but you're going to be dealt a slightly higher interest
rate from what you see on TV or Bankrate.com," Cavazos says.
Before applying for a mortgage,
check your credit reports to make sure they're accurate.
8. Can I get homeowner
This question is especially important in Texas and to a lesser
extent in other Gulf Coast states. There has been an epidemic of
mold-damage claims in Texas, along with multimillion-dollar
lawsuits against insurance companies. One prominent insurer has
pulled out of Texas altogether. Mold claims are a big reason why
Texas has the nation's most expensive homeowner insurance (hot
and humid Louisiana and Florida run second and third).
If you're buying a house with a
history of insurance claims for water damage or mold, you might
have trouble finding a company that will insure it. Shop for
insurance long before the closing date.