Applying, qualifying and negotiating for a mortgage can require a lot of time and effort from the would-be homeowner. And when the finish line is in sight, you may just want to sprint across it, but the last mile is the most important. In the mortgage process, the closing stage is your opportunity to ensure that everything is in order, costs are clear and your lender is on the level.
Taking out a mortgage is a big life step after all, and one that will be part of your life for years to come, decades likely. So try to leave no stone unturned when completing the close on your mortgage. Here are four questions to ask before you sign on the dotted line and finalize your home loan.
It may seem counterintuitive that your lender wouldn't want its money back as soon as it can get it. But prepayment penalties exist because of how lenders may schedule their assets and loans. Paying off your mortgage in five years instead of the agreed-on 15 could be disrupt that sequencing. Thus, some lenders charge prepayment penalties for borrowers that pay off their mortgage too early, often in five years or fewer. You may accidentally trigger these conditions by selling your home and moving or refinancing your mortgage within that set time period. Typically, these penalties may take various forms such as ranging between 2 and 4% of the loan value or six months of interest. Be sure to ask about these possibilities in case you relocate for a job or take advantage of lower interest rates.
A precise date is hard to pin down on account of all the factors that affect the mortgage process. However, asking for a general estimate of the length of time it will take to process your application and close the loan is necessary. Getting an approximate window of time can help with initial moving plans. It may also be an advantage in the eyes of the seller.
That said, be well-aware that the process often is not immediate. Underwriting, document completion, and appraisals will all affect the total time, but a rough estimate of the close is beneficial for overall planning. And as the close draws nearer, that date will come into focus.
The Loan Estimate (LE) and Closing Disclosure (CD) are materials that lenders are mandated by law to provide you. These documents are essential for transparency into costs and obligations, as well as details of the home loan.
Lenders must deliver an LE within three business days of receiving your loan application — a deadline you should track. The LE breaks down your mortgage specifics such as interest rate, projected monthly payments, taxes, prepayment penalties, and all involved fees. Those expenses can stem from appraisals, credit report checks, loan origination, escrow accounts for paying property taxes, flood monitoring, title search and insurance, and application processing. The Loan Estimate is designed as a three-page form that uses clear and direct language so you can fully understand the terms.
The Closing Disclosure is a more intensive document — five pages in all — that itemizes these costs in a similar way. It calculates the actual costs of closing, whereas the LE still only an estimate. Lenders must provide the CD within at least three business days of close. During that time, you can compare the CD and LE and ask questions about the fine print.
When everything is in place, the final step of the process can be initiated: the closing. But before then, you must determine who is actually carrying out the closing, where it will take place and at what time. Hammering out these details is crucial to a smooth transfer of the deed and title. Consider getting in contact with your Mortgage Banker ahead of time, and request to review your closing documents at least three days in advance.
Also be aware of what is required of you at closing, including checks and documents you may need to bring. You may need to arrange an attorney for representation at close. This is required in some states, but it is good financial and legal sense in any case to have a knowledgeable expert in the room with you.
In reality, these are just a few of the questions you will need to ask before closing on your home. Just remember to keep your end goal in focus, which is the dream of homeownership, and be sure to consult your Mortgage Banker on any questions throughout the process. To start that journey, contact The Federal Savings Bank today.