Are you thinking of buying a home in Seattle some time soon? Then it's time to book a chat with a mortgage professional to get the ball rolling. Before you start the application process, you'd be wise to ask a few questions first to make sure you're well informed about your mortgage.
Here are some important questions to ask your mortgage company before committing to a loan and home purchase.
What is the Interest Rate?
The interest rate you're charged on your mortgage plays a key role in the overall cost of your loan and is one of the first questions you should ask a professional from a Mortgage Company in Seattle is the rate that you qualify for on your mortgage. The interest rate your lender charges you depends on a few things, including your credit profile, your down payment amount, and the type of mortgage you're applying for, among others.
The lower the rate, the cheaper your mortgage will be overall because you'll be paying less in interest. Let's illustrate how interest impacts your mortgage by calculating two different rates using a 30-year fixed-rate mortgage on a $500,000 loan:
|Interest Paid Overall
As you can see from the chart above, a 1.5% increase in the mortgage interest rate means a difference of over $400 per month, and about $150,000 in interest! Based on this illustration, it's clear that even a slightly lower interest rate can mean significant savings over the life of your loan.
How Much of a Down Payment Do I Need?
The more you put down towards the purchase price of your home, the less you'll have to borrow. But coming up with a sizable down payment can be difficult, especially if you don't give yourself a lot of time to save up.
That said, there are different down payment amounts that you may be able to choose from based on the loan type and your financial situation. For instance, the minimum down payment amount for a conventional loan is 3%, and for an FHA loan, the down payment amount is 3.5%. Having said that, the average down payment amount in the US is somewhere around 6%.
It should be noted that even though different loan types have different minimum amounts, your specific down payment amount may differ slightly based on your financial health. Borrowers who are in good financial standing may get away with lower down payments, while those with financial issues may need to put down a little more.
It's also important to note that down payments less than 20% of the purchase price of a home will require private mortgage insurance (PMI). The most common way to pay this additional insurance premium PMI is through a monthly premium that's added to your mortgage payment.
FHA loans also have a mortgage insurance premium (MIP) in case you default on your mortgage. In most cases, this type of insurance is paid via one upfront payment at closing, and another each year for the life of the loan.
Right now, the average home price in Seattle is $888,202. Based on this price, your down payment amount would be as follows:
- 20%: $177,640
- 6%: $53,292
- 3.5%: $31,087
- 3%: $26,646
What Are All the Costs Involved?
In addition to the interest rate and down payment — which are two key costs involved in mortgages — there are other costs involved in taking out a home loan. The overall cost of your mortgage can include a myriad of other things, including appraisals, title search and insurance, surveys, recording fees, and others. Every cost associated with your mortgage should be outlined in great detail before you commit to your mortgage.
Luckily, lenders are required by law to provide borrowers with a Loan Estimate, which is a report that details all costs that come with taking out a mortgage. You'll be given this report prior to signing off on your mortgage so you can have a chance to get familiar with all expenses. That said, you should still ask for an estimate of all costs upfront before applying for a home loan.
What Are the Discount Points?
Mortgage discount points are fees that borrowers pay to lenders in exchange for a lower interest rate on their mortgages. In other words, buying discount points means you're “buying down the rate.” Every point that you purchase costs 1% of the mortgage amount, generally speaking, and is worth about 1/4 of a percent of interest for the life of the loan.
For instance, two points on a $200,000 mortgage amount would cost $4,000. The more discount points you pay for, the lower your rate will be. Be sure to ask your lender about their specific discount points.
What's the Best Loan Type For Me?
As mentioned, there are several mortgage programs available, and the one you choose should suit your particular situation. Speak with your mortgage specialist in Seattle about the various loan options available and ask them which mortgage type is best for you.
For example, you'll be able to choose between fixed- versus adjustable-rate mortgages, conventional or FHA loans, interest-only loans, and so forth. Speaking with your lender and asking questions about all options available can help you decide which loan type is right for you.
No matter how informed you may be about mortgages, it's always best to ask as many questions as possible, especially when it comes to things you're not sure of. And even things you do have some understanding of should be clarified with a mortgage professional.