Questions to Ask Before Agreeing to Terms on a Florida Home Loan

We know this is an exciting time - you’re determined to sign up for a Florida home loan and move into the house of your dreams. Congratulations! Before you agree to terms on the first deal that comes your way, however, here are questions to consider whether you’re buying a house or refinancing:

1. How long do I plan to stay in the house?
“I always say, ‘What’s the game plan? How long do you plan to be in the property?’” says Ellen Bitton, CEO of Park Avenue Mortgage Group in New York.

The answer affects whether you would be better off paying points to lower your rate, whether you should get a fixed-rate or adjustable-rate loan, whether you should accept a prepayment penalty. If you’re thinking of refinancing, the answer helps you decide whether you should make this decision at all.

2. How much are the costs of getting the loan?
When you apply for a Florida home loan, you’ll get a federally mandated document called the Good Faith Estimate of closing costs. It estimates how much the lender will charge you for origination and discount fees, an appraisal, a credit report, document preparation, title insurance, a pest inspection and myriad other costs. Compare good faith estimates and especially take note of the line that reads “Estimated cash at closing.” That’s an educated guess of how much you’ll have to pay out of your checkbook to get the Florida home loan you desire.

3. How long will it take to break even?
If you’re buying a home, how long will it take to break, even if you pay discount points to get a lower rate? If you’re refinancing, how long will it take to recoup the closing costs from your monthly savings?

In either case, all you have to do is divide the upfront cost (of discount points if you’re buying a house and of all the closing costs if you’re refinancing) by the monthly savings you would get. That tells you how many months it will take to break even.

4. What makes me feel comfortable?
Bitton says some of her clients insist on paying zero discount points, while others want to pay a lot of points to get absolutely the lowest interest rate, “even if it takes four or five years to break even.”

As far as Bitton is concerned, there often is no right or wrong answer when people ask whether they should pay discount points or choose a 15-year or 30-year mortgage. “There’s not just an objective, dollars-and-cents number,” Bitton says. “There’s also the psychological factor: What are you going to feel comfortable with?”

5. How long should I lock?
This will depend on how busy the lenders and mortgage servicers are — the busier the offices, the longer the wait to close. If you want to lock-in a rate, follow the broker’s or lender’s advice on how long you should lock. You might be told to lock for 45 days or even longer

6. Will I be able to make the payments when I include all the monthly mortgage expenses?
Principal and interest are only part of your monthly payment. Add in private mortgage insurance, association fees, property taxes and homeowner insurance and your range of affordable homes will narrow — to the ones you will actually be able to afford.

In addition, you’ll need a savings cushion. Many people don’t find room in their budget to save up for the inevitable roof repairs, furnace replacement and painting. Then they need to consolidate debt in order to fit these into their budget.

7. Is my credit good enough to get that attractive rate?
The advertised rate isn’t necessarily the rate you’ll get. If your credit history is merely OK instead of excellent, you’ll be quoted a higher rate than your friend with flawless credit. People with less-than-perfect credit won’t be turned away. They’ll just have to pay a higher rate.

8. Can I get homeowner insurance?
This question is especially important in states susceptible to hurricanes such as Florida, Texas and other Gulf Coast states. Mold problems, hurricanes, sinkholes and tornadoes are big reasons why these states pay some of the highest premiums in the nation. Texans are charged the most, according to the latest annual homeowners insurance report from the National Association of Insurance Commissioners. Homeowners in Louisiana, Oklahoma and Florida pay the next highest premiums.

Some insurers have pulled out of states and refuse to write new homeowner policies. If you’re buying a house with a history of insurance claims for water damage or mold, you might have trouble finding a company that will insure it. Shop for insurance long before the closing date.

Summary: You can answer some of these questions yourself, while other require help from a broker. As you prepare for the Florida home loan process, just keep issues such as these in mind and make sure you’re aware of every last detail.