Five Important Things You Must Know When Taking Out a Mortgage in Nashville

2015/05/nashville-real-estate-300x178.jpgHome buying is a long and sometimes a tedious process. Though buyers have to deal with innumerable obligations, financial management is the anchor around which the whole process of home buying revolves. Needless to say, buyers have to make sure they have their finances in order even before they make an offer on a property.
The majority of buyers take out mortgages to realize their dream of homeownership in Nashville and across America for that matter. However, many home buyers don’t realize their responsibilities as a borrower. Not surprisingly, a research firm found that one out of 35 mortgages were at least three months delinquent in Nashville in 2014. The foreclosure rate has come down substantially in the city over the past couple of years, but the fact that so many borrowers are in default on their loans is still a reason to worry.
While there may be lots of reasons for delinquency, many borrowers start making mistakes right from their first move: when they apply for a mortgage. They don’t shop around to get the best deal. They walk into a bank one day and come out feeling happy because the lender told them their mortgage application would be approved.
However, as a borrower you need to know your obligations. For that, you need to interview the lender and know about the bank’s policies and terms and conditions of the mortgage. Here are a few question you must ask a lender before choosing a mortgage product:
Interest rate: That’s obviously the most important thing you should know when taking out a mortgage. Interest rates can change every week, so if you got a quote from a lender last month, it may be dangerous to assume that the interest rate would be the same now.
Monthly payment: You need to know how much monthly payment you would need to make for a particular loan. The payment should not be more than what you can afford. There are various types of loans, so you should choose one that suits your budget and needs.
Type of loan: There are largely two types of mortgages: fixed rate mortgages and adjustable rate mortgages (ARM). The interest rate remains the same in a fixed rate mortgage until it’s paid off. The amortization period is generally between 10 and 30 years. Interest rate changes in an ARM after an initial period of fixed interest rate. When taking out an ARM, you should know when the rate will change and by how much.
Fees and penalties: You should clearly understand various types of fees and penalties that your lender can charge in different situations. For example, you need to know if any fee is to be paid at the closing and if you would have to pay penalties in case you pay off the principal amount early.
Down payment: You would obviously want to know how much down payment you would need to pay. If your down payment is less than 20% of the property’s purchase price, then you may need to pay a certain amount of money towards mortgage insurance every month. Discuss you budget and financial situation with your lender to know how much down payment you can afford. With an FHA loan, you can make a down payment of as low as 3.5%.
These are just some of the basic things you need to know when taking out a mortgage.