You’re ready to buy and can’t wait to start life in a new house. But first, you need to find the right mortgage lender. You should do your research when it comes time to choose a lender, and there are many questions that you should ask to ensure the process is always in your favor. Not all lenders are created equal, and you need to make sure you are going with the right people. If you are a first-time homebuyer or you are just planning on refinancing, you will need to ask the important questions that define your relationship and get you started on the right foot. This guide will take you everything you need to know for a great first meeting with your lender and the most important questions to cover.
Related: Questions to Ask a Mortgage Lender
1. What Kind of Loan Options Do I Have?
There are a large variety of mortgage types that you can choose from, so don’t feel shoehorned into one kind! A big factor when it comes to mortgage types is fixed rate vs. adjustable-rate mortgages. You can choose from a variety of mortgage term lengths. The longer-term options will offer lower monthly payments, but they will require more in interest payments. There are no right or wrong answers! You need to find the loan that suits you and your family best.
You should pay attention to the lender dynamics in the mortgage loan. If you are choosing a conventional loan type, the credit requirements will often be very high. However, if you provide a down payment that is substantial enough, you won’t need to pay mortgage insurance. You will also be able to choose from USDA and VA loans if you meet the criteria for them. Both of these offer the option of buying a house with no down payment at all. However, USDA loans are specifically made to encourage moving and building in areas the government would like to see development. VA loans will only be available to those that are or were a member of the armed forces. This option offers some of the best interest rates from any home loan.
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2. How Much House Do I Qualify For?
Getting prequalified for a loan or getting a verified approval for a mortgage is an amazing feeling, but you shouldn’t necessarily look for a house that costs that amount. You will need to carefully calculate what you are able to spend monthly on your mortgage and leave plenty of wiggle room for utilities, repairs, property taxes, and everything else that comes along with owning a house. You will need to have a good idea of what your monthly budget is before you can buy a home. Your mortgage should be no greater than 33% of your overall monthly living expenses.
3. How Much Should I Put Down?
There are a few things you should consider when it comes to making a down payment (if you need to make one).
- If you have a USDA or VA home loan, you will have the option of paying no money down.
- The FHA home loan will require a 3.5% minimum down payment.
- With a conventional home loan, you will be expected to pay in the area of 3-5% of the purchase price. So for a $300,000 home, you would be looking at $9,000-$15,000. If you like, you can also put down more money on a home if it suits your long-term payment plan.
4. What Is In Your Mortgage Payments?
Contrary to popular belief, much of your monthly mortgage payment isn’t going toward paying off the value of the house. Much of your payment will go to mortgage insurance, interest, taxes, and other costs like home association fees. You will always have principal and interest included in your monthly payment (until your interest is paid in full). Once you have paid off your interest, you will be paying much more towards the principal. You should ask for the exact breakdown of what is in each payment and if and how it will change over time.
5. What Type Of Mortgage Will Suit Me Best?
Use your lending party’s expertise to help guide you on what mortgage will work best for your situation. Have them go over a few options with you, and make sure they walk you through the details of each and why they would be a good fit. If you don’t have very much saved for a down payment, it may be beneficial to look at a USDA or VA loan. If you have a good amount saved, you may want to go with a large down payment and no mortgage insurance. It all depends on your situation.
6. What Will My Interest Rate Be?
Lenders will advertise their rates based on your mortgage interest rate for the home and the APR (annual percentage rate). The APR is the same as the base interest rate but also includes the closing costs from the loan. Generally, the larger the gap between the base interest rate and the APR, the larger the fees your lender is charging. They should be able to explain exactly what your interest rate and APR are as well as why.
7. What Is Your Loan Estimate?
Your loan estimate is simply an estimate of the costs that go into your loan. Lenders will provide you with this a few days after your loan application. Know this number can change as appraisal, insurance, and title fees are subject to change. Ask your lender for a breakdown of the loan estimate and go over anything with them that you don’t understand.
8. How Long Does It Take To Process A Loan?
Ask them how long it takes on average for them to process a loan, so you know what to expect. This can be important to ensure the loan process doesn’t drag on. You have a lot to cover in your home buying journey. Don’t settle for a lender that will make the process longer than it needs to be.
9. What Are Your Servicing Charges?
Servicing is what the lender will do to process your payment and deal with your escrow account after closing. Ask if there are any more fees they haven’t disclosed for service charges. Look out for “payment service fees” or any other nickel and diming happening.
10. How Often Can I Expect To Hear From You?
This is important to ask to gauge how hands-on they will be with you to make sure you are a priority. You should know if they plan on communicating with you once the loan has closed. It will always benefit you to have a dialogue open with your lender.
11. Do I Need Anything Else At Closing?
We all want to be prepared as possible in the homebuying process. Ask your lender if there is anything else you need to bring when it comes time for closing.
12. What If The Appraisal Is Too Low?
Sometimes the home you want may be under-appraised, meaning that if a $300,000 home is appraised at only $280,000, you may have to come up with $20,000 on your own. You can ask what their policy has been on this and what you can expect. You can also attempt to make a new deal with the seller in this instance.
13. Do You Sell Loans?
Most lenders will sell your loan to Fannie Mae, Freddie Mac, or the FHA. But this doesn’t mean that you are dealing with those other parties. Your loan terms will still be between you and your lending institution. You will pay your bank or lending party interest and work with them to pay off your loan over time. However, you should know who the servicer is if you need to work with them for potential loan relief if anything happens.
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14. Am I Prequalified or Preapproved For A Loan?
Lenders will sometimes use these different terms to describe your application status. Make sure you clarify the meaning and know the difference. Preapproval will be a much more in-depth process to let you know they have thoroughly looked at your financial situation and credit score. Get a loan approval letter today with Mare’s Mortgage.
Related: Signs You’re Ready to Buy Your First House