Questions To Ask When Choosing A Mortgage Lender

Questions To Ask When Choosing A Mortgage Lender – One of the most difficult aspects of buying a home is choosing a mortgage and lender. For first-time home buyers, the number of loans and loan options to choose from can seem overwhelming, and it’s not always easy to know which loan 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.

Questions To Ask When Choosing A Mortgage Lender

When working with a mortgage lender to determine which loan is right for your situation, it’s important to understand your financial situation first. If you don’t know what type of loan is right for you, the lender’s answers can guide you to the answer. Also, if you know you want a certain type of loan, such as a veterans loan, this question will help you quickly find lenders that offer it.

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Knowing how much credit you can afford is important to determining how much home you can afford. An easy way to get an idea of ​​how much you can borrow is to ask for a pre-qualification. You give the lender your basic financial information, which allows them to estimate what you can borrow. This is not a guarantee that you will be able to borrow that amount – just a guess.

Understanding how your monthly mortgage payment fits into your budget should be one of the first questions you ask your mortgage lender.

Remember that your monthly payment may be higher than the value of the loan alone. Ask what the total monthly payment will be after adding prorated plans for property taxes and homeowner’s insurance.

It’s common to start the home buying process to have a prequalification letter from your lender to help you figure out your budget and get pre-approved when you’re ready to start buying a home.

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A prequalification is an informal credit evaluation offered to you by a lender based on some basic financial information. Prequalification is best for helping borrowers understand how much they can borrow.

Pre-approval is still a prerequisite, but lenders must take a closer look at your financial documents to better gauge how much credit they can offer you. You can get a loan without applying for this loan. That way, your pre-approval will list the real estate agents and sellers you want to buy from. Pre-approvals are usually valid for 30 to 90 days, so it’s best to wait to get pre-approved until you’re ready to buy a home and make an offer.

Depending on the type of loan you are applying for, you may need to meet minimum credit requirements.

“If you have a credit score of 620, most lenders will consider you eligible for a loan,” says Kimo Quans, a realtor with Keller Williams Realty in San Diego. “But in the post-pandemic era, many lenders are choosing to look at your credit history, which shows that you use your account and that you have credit for a mortgage.”

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Although lenders generally prefer a high credit score, a low score should not be a barrier to entry. For example, first-time home buyers can get an FHA loan with a credit score of 500, but VA loans have no minimum credit score.

Interest rates have a big impact on how much your monthly payment will be and how much you pay in total for your home, and interest rates change every day.

If you’re ready to buy and interest rates are low, ask your lender if they can lower your interest rate. The currency lock usually lasts for 30 to 60 days and you have to pay for it. If you close on the home before the lock expires, you’ll pay that fee, regardless of how much the market has changed in the meantime.

One of the main questions you need to ask your mortgage lender is whether a down payment applies and how much it typically costs for the type of loan and amount you’re looking for. Not knowing if your mover will charge opening fees can add to closing costs. There may also be a fee that you can ask your lender to waive.

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Mortgage points, also called discount points, are payments that home buyers can pay to lower the interest rate on their loan.

Generally, 1 point is 1% of the loan amount. So with a $200,000 mortgage, 1 point is worth $2,000. How much each point lowers your interest rate varies from lender to lender, but in most cases, a lower interest rate will save you more money over the life of the loan. .

“Sometimes it makes sense to pay points,” says Peter Zomick, head of direct-to-consumer lending at Silverton Mortgage in Charlotte, North Carolina. “The longer they keep the actual loan that the points are paid for, the more important it becomes.”

An escrow account, sometimes called an escrow account, holds funds your lender collects from your monthly payment for property taxes and homeowner’s insurance. Some states require an escrow account. If it’s not necessary, you can opt out, but property tax bills and homeowner’s premiums must be paid on time and in full to avoid loan defaults.

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Loan interest rate is the interest that the lender pays you to borrow, expressed as an annual percentage rate.

The annual percentage reflects the total cost of the loan and includes interest, discount points, brokerage fees and other fees associated with the mortgage. The return on the loan will be higher than the interest because it includes these additional costs. This makes the APR a good way to compare mortgage offers.

In addition to knowing the loan interest rate and APR, ask your mortgage lender to explain what fees are included in the APR.

As the name suggests, a fixed-rate mortgage locks in interest throughout the term of the loan. This means that the amount you pay each month for principal and interest is fixed and predictable.

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ARMs have interest rates that change from time to time, which affects the amount of your monthly payment. Most ARMs have a fixed rate for the first three to 10 years of the loan, after which it is adjusted periodically based on fluctuations in the federal funds rate. When interest rates go up, your monthly payment goes up. If interest rates go down, you pay less.

ARMs often have lower interest rates than fixed-rate mortgages during the introductory period, after which rates may increase and your monthly payment will increase. Many borrowers want the stability of a fixed-rate loan, while others are more comfortable risking an increase to save money over the term.

When you apply for your loan, the lender calculates your debt-to-income ratio, which shows how much of your income is needed to pay off debt such as car loans, student loans and credit cards.

Most lenders set a maximum DTI rate for loans, usually 43% to 50%. The less debt you have, the lower your DTI ratio and the more room in your budget for mortgage payments.

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Some lenders verify your income by requesting tax documents directly from the IRS, while others may ask you to provide copies of your income statement and other documents. You can also expect to be asked for documents such as current statements of outstanding loans or credit accounts.

One of the main items on the list of mortgage questions and answers is how much you need for a down payment. 20% is ideal and allows you to avoid paying private home insurance, but the lowest payment available for a qualified conventional loan is 3%. FHA loans require 3.5%, while VA loans require no down payment.

Saving a higher payment can be more difficult, but it can lead to lower interest rates on your loan and owning a home with more equity.

Some nonprofits and municipalities help first-time homebuyers get a home with down payment assistance. The assistance can be in the form of a grant that does not have to be repaid or a small mortgage that pays off over time.

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“First-time homebuyers should ask questions about assistance programs, first-time homebuyer programs and down payment programs,” says Thomas Stewart, branch manager and senior loan officer at Embrace Home Loans in Culpeper, Virginia.

Not all lenders accept payment assistance as part of a loan application. If you plan to get help from a down payment assistance program, ask your mortgage lender in advance if they work with the program. Down payment assistance programs can also refer you to lenders that accept financing.

Once you’ve made an offer on a home and it’s been accepted, accept it

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