Home Finance

Home finance has become an incredibly diverse and complicated industry. This is good and bad. Good, because there are at least a hundred ways to borrow the money for your next home now. Bad, because there are also dozens of ways for lenders to take advantage of you, from hidden charges to prepayment penalties and more.

Let lenders explain all the various home loans and home finance options available, but when you finally decide on a product you like, ask as many of the following as are relevant to your loan. These are the questions that will protect you.

- The interest rate on the loan?

- The APR (this is the annual percentage rate, which includes fees, points and mortgage insurance)?

- If it is an adjustable rate (ARM), what is the initial rate?

- If its an ARM, what's the highest the rate can go to next year?

- If its an ARM, what are the annual and lifetime caps on the interest rate and payment?

- If its an ARM, how often is the rate or payment adjusted, and when?

- If its an ARM, what index is the rate based on?

- If its an ARM, what margin is added to the index? (It might be the index plus 2%, for example.)

- Do you require credit life insurance? (This pays off the loan if you die and is usually a bad deal.)

- How much would the payment be without credit life insurance?

- Is it possible to have any of the fees or costs waived on this loan?

- Any prepayment penalties?

- How much is the prepayment penalty?

- How long is the penalty in force?

- Is an interest rate lock-in available? (This guarantees the interest rate until a certain time - usually closing.)

- Can you get the lock-in in writing?

- Is the rate locked in at time of application or time of approval?

- If rates drop, can you get a lower rate locked-in?

- What inspections and/or surveys does the lender require?

- What kind of title search and/or title insurance does the lender require? The cost?

(The rest of the list is in Chapter 16 of "Cheap Homes - How To Save Thousands Buying Your Next Home." Use the link to the home page below for more information.)

Some lenders won't like getting two dozen questions thrown at them, but you have a right to ask before you agree to a loan. A 1% higher interest rate on a $150,000 loan can cost you an extra $30,000 over the years. Obviously, home finance can be as important as a good price when it comes to saving money on your home.