Ask these 10 questions and use the answers you get to decide whether to go with a mortgage lender. This is a very important step of the process and should not be taken lightly. You should come to a potential lender with a list of questions already prepared. Do not sign any documents until you have asked your questions, and had them answered satisfactorily!
Signing a mortgage is a huge commitment. You need to make sure you understand every aspect of the loan, what hidden fees will be involved, and what you are responsible for paying either now or in the future. This list of 10 questions will help you immensely in choosing your future lender.
What is the interest rate for the mortgage?
You need to know exactly what you’ll be paying over the term of the loan so being aware of the rate is obviously essential. Rates can change on a dime and you might not get a low rate if your credit isn’t up to snuff.
To compare different lenders and their programs, ask for the annual percentage rate (APR) of the mortgage interest which is higher than the initial quoted rate because it encompasses all the fees associated with the buying of a house and mortgage. Be careful: companies advertise really low APR but aren’t actually including all the fees that come with a home mortgage. You must ask for the itemized breakdown of the rates and all the fees, otherwise you could be using a fake and unrealistic APR to make your decision.
How many discount and origination points am I applying for? How much will I pay?
Lenders can charge prepaid mortgage interest points that will lower your interest rate but might have no real benefit to you overall. You need to know what kind of points these are and how much they want you to pay up front, so you don’t get the wool pulled over your eyes at the last second.
What are the closing costs?
The lender and all of the people involved in the transaction from start to finish have fees you will need to pay. Figure out what these will be from the start and include them in your calculations. Home mortgage lenders are required to give you a letter outlining what these closing costs will be within 3 days of getting the loan application.
When can I lock in the interest rate and how much will that cost?
Interest rates fluctuate daily, and you don’t want it to change between when you first apply and when you close. To prevent increases to your rate you will want to lock in a rate and perhaps points for a specified period. There might be lock in fees associated with this action, so you need to ask your lenders. Try to determine what experts are predicting the rates are going to do and read the Rate Trend index to get the best possible rate.
Is there a prepayment penalty for this loan?
If you prepay on your loan there might be a penalty. Penalties can be 1 percent of the loan amount, or six months worth of interest. Some only apply when you choose to refinance or try to reduce the principal balance by more than 20 percent. Some penalties apply if you try to sell your home before the mortgage is paid. Find out how long the penalty period lasts and how it is calculated. Sometimes there are lower interest rates available to buyers who accept prepayment penalties.
What is the minimum down payment I have to make on this loan?
Generally the down payment will be between 3 and 20 percent of your house price. The more money you are able to put down, the more you will be able to lower your rate and the better the terms you’ll get. If you can’t pay 20 percent of the home’s value, you will usually be required to buy private mortgage insurance.
Do I qualify for this loan? What are the guidelines?
To qualify for a loan they will look at your income, employment, assets, liabilities and credit history. First-time buyer programs, VA loans and other government programs are available for better deals on mortgages and easier qualification guidelines than other loans, with some of these programs offering zero percent down mortgages.
What documents will I need to provide?
Most home mortgage lenders require proof that you have an income and will want to look at your assets before accepting your loan. They can ask for other personal financial documents as well. If you have stellar credit, you may qualify for a no-documentation loan but you will probably have to pay a much larger down payment and a higher interest rate.
How long does it take to process the loan application?
Unfortunately, getting a loan is seldom a quick process; when the mortgage industry is doing well, as it is doing now, underwriters have a lot of applications to process, verifications take longer, and appraisals tend to move slowly. Most lenders tell you two weeks wait time,but the average amount of time for the application to be processed is 45 to 60 days. Therefore you will need to take that into consideration when you are setting a limit on how long you want to lock in the interest rate on your loan.
Are there any foreseeable delays to the approval of the loan?
If all goes according to plan and the application is finished with all of the correct information, the home mortgage lender should be able to process your loan without a hitch. But if the underwriter finds credit issues, there could be delays. If you change jobs, have a fluctuation in salary, carry debt, or change your marital status in the time between when you submit and when your loan is funded, let your lender know!
These 10 questions will get you most of the information you need to know to get the right home loan and take the hemming and hawing out of the process. This also improves your attractiveness to the lender as you will appear more well informed and responsible during the process.
Source: Thinkstock/AlexRathsPosted on May 18, 2023