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First Time Home Buyer Questions To Ask Lender – One of the more difficult aspects of buying a home is choosing a mortgage and lender. For first-time home buyers, the number of lenders and loan options can seem dizzying, and it’s not always easy to know which is right for you.
Here are 22 questions to ask your mortgage lender to help you sort through your options and find the loan and lender that’s right for you.
First Time Home Buyer Questions To Ask Lender
When working with a mortgage lender to determine which loan is best for your situation, it is important to understand your financial situation beforehand. You may not know what type of loan is best for you at first, and let your lender’s answers guide you to the answer. Or, if you know you want a certain type of loan (like a VA loan), this question will help you quickly find a lender that offers it.
Questions To Ask Yourself Before Buying Your First Home
Knowing how much you can borrow is crucial to determining how much of a home you can afford. An easy way to get an initial idea of how much you can borrow is to apply for pre-qualification. You provide the lender with your basic financial information and the lender gives you a rough estimate of how much you can borrow. This is not a guarantee that you can borrow this amount – it is only an estimate.
Understanding how your home loan monthly payments fit into your budget should be one of the first questions you ask your mortgage lender.
Remember that your monthly payment may be more than just the cost of the loan. Be sure to ask what your total monthly payment will be after adding prorated assessments for property taxes and homeowner’s insurance.
The home buying process usually begins with a pre-qualification letter from a lender to help you set a budget and get pre-approved when you are ready to buy a home.
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A pre-qualification is an informal estimate of the loan a lender can expect to offer you, based on some basic financial information. Prequalification is best for helping borrowers understand how much they can borrow.
Pre-approval is still an estimate, but lenders will review your financial documents in more detail to get a better estimate of the loan amount they hope to offer you. This is the closest you can get to qualifying for a loan without actually applying. Therefore, a pre-approval letter indicates to real estate agents and sellers that you are ready to buy. A pre-approval is usually valid for 30 to 90 days, so it’s best to wait until you’re ready to buy and make an offer on the home.
Depending on the type of loan you are applying for, you may need to meet minimum credit score requirements.
“If you have a credit score of 620, many lenders will consider you eligible for a loan,” said Kimo Quance, a real estate agent with Keller Williams Realty in San Diego. “But in the post-pandemic world, most lenders prefer to look at your credit performance, This shows that you use your account and makes your mortgage reliable.”
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Although lenders generally prefer higher credit scores, a lower credit score is not necessarily a barrier to entry. For example, a first-time home buyer needs a credit score of 500 to qualify for an FHA loan, while VA loans have no minimum credit score.
Interest rates have a big impact on your monthly payments and the total cost of your home, and they can change every day.
If you are almost ready to buy and the interest rate is low, ask your lender if you can lock in an interest rate. Rate lock usually last 30 to 60 days, for which you have to pay. As long as you close on the home before the foreclosure expires, you’ll pay that rate, no matter how much the market changes in the meantime.
One of the main questions to ask your mortgage lender is whether there is an origination fee, and how much is typically required for the type and amount of loan you are seeking. Not knowing whether a lender will charge an origination fee can increase closing costs. You can also ask your lender to waive this fee.
Questions To Ask Your Mortgage Broker
Mortgage points, also called discount points, are upfront fees that a homebuyer can pay to lower the interest rate on their loan.
In general, 1 point is equal to 1% of the loan amount. So, on a $200,000 mortgage, 1 point costs $2,000. How much each point lowers your interest rate varies by lender, but in most cases, a lower interest rate can save you significant money over the life of your loan.
“Sometimes it makes sense to pay points,” says Peter Zomick, senior director of direct consumer lending at Silverton Mortgage in Charlotte, North Carolina. “The longer a person sticks to the current loan they’re paying points on, the more significant it becomes.”
An escrow account (sometimes called an escrow account) is where your lender holds funds collected from your monthly payments for property taxes and homeowner’s insurance. In some states, an escrow account is required. You can decide if you don’t need it, but you still have to pay your property taxes and homeowner’s insurance on time to avoid paying off your loan.
Pre Qualified Vs. Pre Approved: What’s The Difference?
The loan interest rate is the interest rate that the lender pays you each year to borrow money, expressed as a percentage.
The APR represents the total cost of the loan, including the interest rate, discount points, brokerage fees and other fees that come with your mortgage. The APR on the loan will be higher than the interest rate because it includes these additional costs. This makes the APR a great way to compare mortgages.
In addition to understanding the interest rate and APR of your loan, ask your mortgage lender to explain exactly what fees are included in the APR.
As the name suggests, fixed rate mortgages lock in the interest rate for the entire term of the loan. This means that the amount of principal and interest you pay each month is constant and predictable.
How To Answer Lender Questions When Applying For A Loan
ARM interest rates can change from time to time, which will affect your monthly payments. Most ARMs have a fixed introductory rate for the first 3 to 10 years of the loan, which is then adjusted periodically based on fluctuations in the federal funds rate. When interest rates go up, your monthly payments go up. When interest rates go down, your payments go down.
During the introductory period, ARMs generally have lower interest rates than fixed-rate mortgages, after which rates may increase and your monthly payments may increase as well. Many borrowers like the stability of a fixed interest rate loan, while others prefer to risk an increase in interest rates during the initial period to save money.
When you sign your loan, lenders calculate your debt-to-income ratio, which shows how much of your income is used to pay off debt such as car loans, student loans and credit cards.
Many lenders set a maximum DTI ratio for loans, usually between 43% and 50%. The less debt you have, the lower your DTI ratio and the more room you have in your mortgage budget.
Questions Every First Time Home Buyer… By Glink, Ilyce R
While some lenders request tax documents directly from the IRS to verify your income, others may ask you to submit copies of your income tax returns and other documents. You may also be asked to provide documentation, such as current statements for any outstanding loans or credit accounts.
One of the main items on this list of mortgage questions and answers is how much of a down payment you need. While 20 percent is an ideal amount that allows you to avoid paying private mortgage insurance fees, the minimum payment for a conforming conventional loan is more affordable 3 percent. FHA loans require 3.5% and VA loans have no down payment requirements.
A higher payment may be harder to save, but it can result in a lower interest rate on your loan and you will start to have more equity in your home.
Some nonprofits and local governments help first-time homebuyers buy a home through down payment assistance programs. Help can come in the form of a grant that doesn’t have to be repaid, or a small second mortgage that has to be paid off over time.
First Time Buyers
“First-time homebuyers should definitely ask questions about assistance programs, first-time homebuyers and loan programs,” says Thomas Stewart, branch manager and senior loan officer at Embrace Home Loans in Culpeper, Virginia.
Not all lenders accept down payment assistance as part of the loan application. If you plan to get help from a down payment assistance program, be sure to ask your mortgage lender beforehand if the program is available. Down payment assistance programs can also refer you to lenders that accept their funds.
If you make an offer on a home and it is accepted, you will
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