Questions for lender & insurance company when buying a home

Questions for the Lender:

If you are ready to buy a home, ask these 10 key mortgage questions of a potential lender to avoid surprises and make sure you’re getting the best deal.

1. What is the interest rate on this mortgage?

Ask for the lender’s loan estimate, which breaks down the interest rate and fees. It will include the annual percentage rate, or APR, plus information about points, fees and other add-on charges you will pay for a mortgage.

2. What discount and origination points will I pay?

This question will let you know if the lenders charges discount points, origination points or both. One point is equal to 1 percent of the loan amount. For example, if you take out a $162,000 mortgage and agree to pay 1 discount point, it will amount to a fee of $1,620, because that’s 1 percent of $162,000. (Divide the loan amount by 100 to calculate 1 percent.)

  •  Discount points reduce the interest rate. They are prepaid interest and are tax-deductible.
  •  Origination points are fees charged by the lender to cover the costs of originating the loan.

3. What are the closing costs?

Borrowers pay fees at closing for services provided by the lender and other parties, such as title companies. Lenders are required to provide a written estimate of these closing costs within three days of receiving a loan application.

4. When can I lock the interest rate, and will it cost me?

Interest rates might fluctuate between the time you apply for your mortgage and your closing. To avoid winding up with a higher rate, you can lock the rate — and even the points — for a specified period. Fees may apply, but not always. To keep tabs on rate movements, follow Bankrate’s Rate Trend Index.

5. Is there a prepayment penalty on this loan?

Some lenders charge a penalty if you prepay on the mortgage. Some apply the penalty only when you refinance or reduce the principal balance by more than a certain percentage. By asking this question, you should find out the penalty specifics and whether your lender will give you a lower interest rate if you choose a loan that comes with a penalty.

6. What is the minimum down payment required for this loan?

A bigger down payment might mean a lower interest rate and better loan terms. On the other hand, a down payment of less than 20 percent will likely require you to get mortgage insurance, increasing your monthly payment.

7. What are the qualifying guidelines for this loan?

Ask this mortgage questions to find out if there are any requirements you’ll have to meet related to your income, employment, assets, liabilities and credit history. First-time homebuyer programs, Veterans Affairs loans and other government-sponsored mortgages typically have less stringent standards.

8. What documents will I have to provide?

Lenders require proof of income and assets, including bank statements, tax returns, W-2 forms and recent pay stubs. More paperwork may be needed to show that you can make your down payment and are able to pay closing costs.

9. How long will it take to process my loan application?

Depending on how busy the lender is, it can take as little as two weeks or as long as 60 days. Be patient, and submit any requested documents quickly to speed up the process.

10. What might hold up approval of my loan?

A job change, an increase or reduction in salary, a new debt, a change in your credit history or change in marital status could delay your loan approval. The best way to avoid that is to put your financial life in a holding pattern until you reach the closing table.

Information from Bankrate.com

Questions for the Insurance Company:

Homeowners insurance is supposed to give you peace of mind, but insurance companies say there are questions homeowners should be asking their agents, but aren’t.

  1. Do I have enough coverage to rebuild my home from the ground up?

Agencies agree that your policy should allow you to completely rebuild your home. “We recommend that you purchase an amount of coverage at least equal to the estimated replacement cost,” says State Farm spokesperson Rachael Risinger. Larry Thursby, vice president of Standard Auto & Product Property/Pricing at Nationwide, recommends working with a local agent who is familiar with the construction materials used in the area for a more accurate reconstruction cost. And Glenn Greenberg, spokesperson for Liberty Mutual, adds, “Don’t forget to ask your insurance company about any home upgrades you may have performed recently, like bathroom remodels, new kitchen appliances or even creating a backyard entertaining space. These could all increase your home value and require additional insurance protection.”

2. What things do people assume are covered by a standard homeowner policy but may not be?

Your regular policy only insures so much and things like smartphones, computers, and other valuables may need additional coverage.“Consumers are not always aware of the extra protection they might need for valuables,” says Greenberg. “Whether it’s an expensive engagement ring or a rare stamp collection, some things aren’t covered by your standard home policy. For high valued items, like engagement rings, artwork, etc., consumers should look into “scheduling” the property. Scheduling is an insurance term meaning the item is on a “schedule” and insured separately — it is not covered under the general personal property limit.”

3. Do I have coverage in the case of a natural disaster?

“There are numerous earthquakes in the U.S. every year, yet many Americans do not have adequate coverage to repair damages resulting from earthquakes,” says Thursby. And according to Risinger, standard homeowners insurance also does not cover flooding and many companies do not sell flood insurance, so customers should look into securing a policy from the National Flood Insurance Program.

4. Do I need coverage if I rent my home on Airbnb?

The sharing economy means extra income, but also extra risk and liability. Some companies, such as Allstate, offer additional coverage in case of damage from renters or guests. You’ll also want to let your agent know if you have non-standard items that could cause injury such as a pool, shed, or trampoline.

5. Are there discounts I’m missing out on?

“Before you renew your policy, speak with your agent about discounts that may be available,” says Risinger. “You may qualify for discounts for having alarm systems or higher deductibles.” Don’t assume you know all the possible savings. For instance, Liberty Mutual offers a discount for customers with smart home devices. And if you have a car, discounts may be available if you insure it with the same company.

6. What are the most common claims in my area?

Why not learn from the others? Allstate spokesperson Justin Herndon suggests asking your agent what claims come up frequently so you know you’ll be covered.

7. Is my deductible too high?

It’s important to weigh the pros and cons of a low premium. “While price is important, it is also important to understand whether or not you would be able to afford the deductible in the event of a covered loss, says Herndon. “Choosing a 5 percent all peril deductible may be good for reducing your monthly premium but can also be a challenge should it result in a high out-of-pocket deductible.”

Information from Huffingtonpost.com