Questions to Ask Your Mortgage Broker or Lender
The home buying process is long and stressful and if you’re a first-time buyer, you’ll likely have a lot of questions to ask. To make sure you get the answers you need, take a look at this list of important questions to ask your mortgage lender and mortgage broker.
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What Type of Home Loans do you Offer?
What types of loan does your chosen mortgage company provide and which ones are best suited to your needs?
You can get an FHA loan, VA loan, USDA loan or conventional loan, and the type of mortgage you choose will dictate everything from your down payment and credit score requirements to your interest rate and insurance.
Is There a Prepayment Penalty?
A prepayment penalty penalizes you if you repay more than a specific percentage of the loan every year and can also impact refinancing options. If your goal is to increase your mortgage payment to pay your loan quickly, you need to be aware of these penalties.
Many lenders will limit you to paying no more than 20% of your balance every year. Many borrowers won’t get anywhere near this sum but should still check whether such a penalty exists or not.
What Will my Annual Percentage Rate Be?
Your interest rate is one of the most important parts of your mortgage. It dictates how much interest you will pay in the short-term and the long-term and essentially outlines the total cost of your mortgage.
The lower the rate is, the better, so make sure you understand what rate you’re being offered and whether or not this is in line with what other mortgage lenders will offer you.
If you have a high fixed-rate loan or adjustable-rate mortgage and you can’t get a cheaper rate with any other loan programs or lenders, consider reducing your term. The length of the term has a much bigger impact on your total interest payments than the actual interest rate.
For instance, if you borrow $200,000 over 30 years at a rate of 3%, you’ll repay a total of $303,000, as opposed to the $386,000 you’ll repay with 5%. But if you choose a loan period of 15 years, then even a 5% APR will cost you just $284,000 over the term. A lower rate is still key, but the term is equally important.
What is my Loan Estimate?
The loan estimate is a detailed breakdown of all the costs associated with your loan. They are required to provide you an estimate within three days of completing the application and this should include:
- Closing costs
- Loan terms
- Loan amount
- Monthly payment
A closing disclosure will also be sent three days before closing. This may include some slight changes to the mortgage rates and third-party fees.
Can I Get a Rate Lock?
A rate lock allows you to “lock” a rate in, protecting you against any price fluctuations that may occur between offer and closing. Ask your mortgage lender if they offer a rate lock and, if so, how long it will last.
What is the Processing Time?
There is no fixed loan processing time, but it’s important to know how long the loan process will take, so make sure you ask the lender how long they expect to close the loan. Sellers who are desperate to offload their homes may get impatient if the process drags on, so it’s important to get this completed as soon as possible.
What Information do I Need?
For your loan estimate to be sent, the application process needs to have been finalized and this can only occur when you have submitted all the necessary information, including:
- Your full name
- Income and loan amount
- Social Security Number
- The estimated value of the property
- The address of the home you wish to buy or refinance
Do You Charge Any Hidden Fees?
There are many hidden costs associated with buying a home, from the origination fee to payment services, document transfers, legal fees, and more. Make sure you understand what all of these fees will be upfront as they are not charged by all lenders and you may find a cheaper option elsewhere.
You can also negotiate a discount with your current lender if you believe some of these fees are excessive.
Questions About the Process
In addition to the important questions to ask your mortgage lender, you may have a few questions about the process in general, including:
Do I Need Excellent Credit to Apply for a Mortgage?
A good credit score is important if you want a low fixed-rate mortgage, but you don’t need excellent credit and as soon as you get above 500 you can start looking at acquiring a mortgage loan. The closer you get to 700, the better your home loan options will be.
How Big Should the Down Payment Be?
You can get a home loan with a down payment of just 3%, but the smaller the down payment is, the higher your interest rate will be. You will also be expected to pay Private Mortgage Insurance (PMI) if you pay less than 20%.
Making an effort to increase your down payment can greatly improve the rate you’re offered on your new home and significantly reduce the interest you pay over the life of the loan.
How Long is Pre-Approval?
A pre-approval typically lasts for between 60 and 90 days, but it can be extended by submitting updated documents.
A pre-qualification is essential if you want to give yourself the best chance when dealing with lenders and Realtors and it will ensure this process runs smoothly.
What Happens if the Appraisal is Short?
If the home appraisal comes up short, you’ll typically have two options:
- You renegotiate with the seller, using this new information to get a cheaper price, or;
- You cover the remainder as a lump sum amount.
The lender isn’t going to simply overlook the additional cost. The home appraisal is performed for a reason and if the mortgage lender deems that the house is not worth the price you’re paying, you will be expected to go back to the drawing board.
Summary: Ask Many Mortgage Questions
First-time homebuyers usually have a lot of questions, but often feel embarrassed to ask them. But there’s nothing embarrassing about it; you’re not expected to know everything about a process you have never undertaken before. So, don’t be scared to ask a question, no matter how seemingly simple and obvious it might seem.