This article gives you an indent query by query explanation of what you may ask your lender before making that big step. It will highlight some of the pertinent issues that credit usually entails. Therefore, you will have tons of information to help you make a candid decision based purely on facts and not notions. After seeing so many people take loans and fall into depression, even harder than they had, you will agree that if credit is not well managed, it can be catastrophic.
For instance, having your loan company come to your home to auction your property. There is almost nothing you can do. Therefore, as you are shopping for a loan, make sure regardless of your credit score, you settle for that which you can manage. A lender will always be looking at making profits off you from the interests they charge. You have to, therefore, be vigilant and protect your interests as well.
As you consider the type of credit more feasible for you, keep in mind that the lender is likely to give you the correct information after having gained a little trust from you and is allowed to access information like your credit rating. So, make sure you allow some info out, just to give the lender the basics of what they may be dealing with.
What type of loan would be most appropriate for you?
Lenders would first want to assess the kind of loan that would be suitable for you. Therefore, they will ask a few questions and even seek your permission to contact the credit bureau for your score. All this is done in an attempt to determine your qualifications and make a probable assumption based on the set parameters the amount of loan or the type of loan is best suited with the figures that are provided.
Engage with the lender on the merits and demerits of all the options which sound feasible for you. For example, let the lender tell you what negative amortization loans are –have varying interest repayments over time, the interest-only –has a once a term balloon payment so that in the meantime, you are only expected to remit the interests on the loan, adjustable-rate loans –can fluctuate depending on the loan markets.
Therefore, by the end of the day, you know what kind of loan you are comfortable with based on this factor.
What is the annual percentage rate (APR) of the loan?
An APR is usually computed by dividing the interest rate (plus other chargeable fees) by the term of the loan. Most lenders have problems with this computation since it is complicated to determine the APR with a varying interest rate. Also, the early payoffs for the loan are rarely accounted for in this calculation. Therefore, task the lender to thoroughly take you through this to get all the information about this loan variable.
How much loan deposit is required?
Not all loans require a down payment for processing. But if they do, engage with the lender to tell you what amount better compensates this value. You should note that the standard down payment, which is accepted, is 20% of the gross amount, although this is just on the high depending on your credit score. If you have impeccably excellent credit, you are likely to go away with as low as 3% of the total amount. However, this has damaging provisions. If you give a deposit of points less than 20 on 100, there is a possibility that you will have to shoulder the private loan insurance, hence escalating the total monthly payments until your equity is 80 points to 100 thresholds.
Does the loan come with prepayment fees?
Ensure you are aware of the lender charges prepayment fees, and so, what are the rates? This is because; these penalties are usually prohibited in other states and countries. So if they are not permitted, be sure to ask how the lender gets financed on the early repaid loan. If they are allowed, you should probe to know how they are collected and just after how long are the terms of the prepayment fees standing.
Does the lender assure on-time closing?
Loan closure depends entirely on the lender's ability to do so. It is therefore prudent to know if it is a guarantee that the loan closure will be over anddone with as at the date that is indicated on the purchase contract. Late closures often attract extra costs and extra expenses and interests due to the expiration of the lock-in. Probe, if this does come to play, how is it going to be addressed?
Can the lender lock your interest rate?
As earlier stated, some kinds of interest rates usually fluctuate depending on the loan type you are taking out. Therefore, if you realize that your prices might be slowly escalating, ask the lender if you can get a lock on them. Also, ask if they do lock the rates, at what cost would it attract and how long will it remain locked? And will that guarantee protection to all the values of the loan? Alternatively, does the lender allow the extra points on the rates to be servicedon the last day of payment?
Probe about the loan requirements.
Loans have many hidden costs apart from the ones that are required of you before it processed. Before you agree to take out that investment ensures you know all the applicable fees on it. Including; taxes, recording fees, processing fees, title policy fees, appraisals, etc.
The lender should compile an estimate of all these fees which are applicable and document them in the loan estimates then present it to you on the application completion. You should, however, ask what the forecast is before you sign the loan documents.
The Bottom Line
Generally, all these lenders are very much in business to make profits some money lenders are even open on a Sunday. If you engage in a loan transaction without doing your due diligence, consequences are bound to come abode, and you sure won’t like a piece of them.
These questions that are covered in this article should not limit your scope of the query.Seek for clarification on anything that you think if fit to be included in your like of probe. Such as origination fees, discount points, in house approvals, etc.