Mortgage Questions to Ask Before You Sign

The day that you find out that you have been approved for a mortgage is one of the best days of your life. However, it is a good idea to make sure that you know what you are signing before doing so. Once you sign the loan documents, you are bound by its terms until it is paid off or refinanced. Therefore, what are some questions that you should ask before signing on the dotted line?

Is There a Prepayment Penalty?

The most important thing that you need to know before signing a mortgage contract is whether there is a penalty for paying early. In most cases, it doesn’t matter when you pay off the balance as long as you make your minimum monthly payment. However, some lenders try to put language in that prevents you from paying off the loan before the end of the term. This means that you may not even be able to refinance because you are technically paying off your old loan by doing so.

What Happens If I Miss a Payment?

No one intends to miss a mortgage payment or fail to make payments on any debt that they owe. In fact, your lender does everything possible to ensure that you won’t miss a payment on such an expensive loan. However, there is a chance that you could lose your job or fall ill, which could result in a loss of income or a large new expense. That could result in a missed or late payment, which could mean that the lender will foreclose on the loan. Knowing the consequences of missing a payment will help guide your thought process in the event that you are struggling to keep up with the loan in the future.

What Happens to the Home If I Pass On?

Typically, your survivors may have the opportunity to continue making payments on the loan if you pass on before fully paying it off. In some cases, the lender may reserve the right to foreclose on the property if there is no one willing or able to continue making those payments. This is important to clarify ahead of time in case you are suffering from a health issue that may get worse or if you are planning on leaving the house to a family member.

How Long Am I Required to Keep Insurance on the House?

Homeowners insurance is a great product to own because it will help you protect your investment in the event that damage occurs to the home. For instance, if gusty winds tear off your roof’s shingles, there will be money to replace them. In most cases, you are not legally required to carry homeowners insurance. However, your lender may require you to do so as a condition of your loan. This protects the lender’s interest in the property throughout the term of the loan. Often, this requirement is in place until the loan is paid off, but it is important to ask just to be sure that you are not spending money on something that you don’t want or need to have.

Is There a Grace Period on the Loan?

Typically, you will have 45 days from when you close on the home to when you have to make the first payment. You also have 15 days after the due date to make your monthly payment without penalty on most loans. Asking about any grace period may help you decide which bills to pay first if you are in a financial crisis in a given month or need time to save up money for your first few payments.

Your mortgage is your largest and perhaps only long-term debt. Therefore, it is important that you understand the terms and conditions of that loan before you sign it. If you are unclear about anything, be sure to ask before you are legally bound to honor everything in the document.