Essential Mortgage Questions Before You Buy Property

Most people who are interested in buying property are going to need a mortgage loan. The mortgage process is a necessary one that many people feel will be overly complicated. However, if you approach your home buying process fully prepared, it doesn’t need to be. To prepare for this, there are a few questions it is important to ask yourself regarding mortgage loans before you buy.

Mortgage Question 1: What is My Credit Score and How Does it Affect My Mortgage?

Your credit score is a score generated by the three major credit reporting bureaus, TransUnion, Experian and Equifax. The score ranges from 300-850 and may not be the same for every given bureau on every given day. This score and the credit report that goes with it is used by lenders to assess risk and to set your rate. The higher your credit score, the lower your mortgage rate is likely to be, so try and get that score up before applying for a mortgage.

Mortgage Question 2: What is Escrow and Do I Need It?

An escrow account is an account held by a third party and set up by your lender. The amount you pay into your escrow account is used as a reserve from which bank payments, property taxes and other expenses related to the loan or home are paid when they become due. You don’t necessarily need an escrow account, but some lenders may include an escrow account as a standard part of their lending package.

Mortgage Question 3: What is the Right Kind of Mortgage Loan for Me?

There are many different types of mortgage loans. You can get a fixed rate mortgage, where the interest rate remains the same for the life of the loan. You can also get an adjustable rate mortgage. These mortgages start slightly cheaper, but can fluctuate depending upon the prevailing rate. You can also get variable loans that are a hybrid of the fixed rate and adjustable rates. Your mortgage broker should be able to help you determine which one you want. In general, fixed rate mortgages are better for the long term, while adjustable rate mortgages provide more short-term flexibility.

Mortgage Question 4: What is a Balloon Payment?

A balloon payment is a feature of a mortgage loan. If a loan has a balloon payment, it means the mortgage will not be paid in full when the term of the loan expires. The remainder must be paid off all at once, in an inflated “balloon” payment. Many people refinance in order to handle the balloon payment. You should know whether you will have a balloon payment and how you will pay it before you get your loan.