7 questions to ask a mortgage lender to make sure you don’t get fooled
Hey Daddy bankMy wife and I are buying our first house. Well we were hoping buy our first house for almost a year and a half. We got close sometimes, but some places didn’t look good. The only thing that makes the process difficult is understanding mortgage rates, the different types of mortgage loans, being pre-qualified versus pre-approved. There is a lot of language and insider terms and it’s quite frustrating. I was hoping you could ask a mortgage lender a few questions so that I didn’t feel stupid during the process. Thanks Marcus by e-mail.
Let’s be honest. Unless you eat, sleep, and breathe financial stuff, house purchase it is complicated. This is especially true for the financing part, where many people feel totally overwhelmed by the complexity of the lending industry and its confusing jargon.
But here’s the thing you need to know. Every time you hire a loan specialist, you are entering a competition. They try to get as much money as possible for themselves and their employer – and the less you know about the conversation, the more successful they will be in this pursuit. If, on the other hand, you go there knowing what to ask for, you are tilting the balance of power in your favor.
In terms of what questions to ask the loan officer, I thought about contacting Colin Robertson, founder of the blog. The truth about the mortgage and a former lender himself. Here’s what he said should be on everyone’s list.
7 mortgage questions to ask a lender
1. “What will be the total amount of the payment for housing?” “
It’s easy to focus on the actual amount of your mortgage payments each month. But keep in mind that you’ll also have to pay for things like property taxes, home insurance, and HOA fees. If you put less than 20% on the house, you may also have to pay mortgage insurance premiums, which protect the lender against the risk of default on the loan. It all adds up.
“Know the total amount you will need to pay each month to make sure the home is affordable and doesn’t interfere with your other spending and savings goals,” says Robertson.
2. “What is my rate and for how long is it valid?” “
Snagging a low mortgage interest rate helps lower your monthly payment, giving you a little extra wiggle room in your budget. It means looking for lenders – and negotiating.
But Robertson says you should also ask how long the rate is good for (the lockout period) and make sure it’s actually locked in once you’re happy with the quote you receive. That way it won’t change, even if rates go up in the meantime.
3. “Do you charge the lender any fees or points? “
Expect to pay a plethora of fees when you take out a mortgage, including property fees, loan processing fees, underwriting fees, and loan origination fees. Some of these can be reduced with a little negotiation. The loan origination fee, for example, is usually a percentage of the home’s selling price. For more expensive homes, the lender may be willing to take a smaller slice of the pie, knowing that they will always make a respectable profit.
By law, the lender must provide the “APR”, a version of the interest rate that includes all or part of these fees. Be sure to ask what is included in their figure. This way you can compare the APR for different loan options, taking into account any fees that are not included in it.
Also check if the lender charges you prepaid interest, also known as “points. “Each point is equal to one percent of the price of the house. So paying two points on a $ 300,000 house means you have to shell out more than $ 6,000 at closing. Paying points will usually reduce your cost. interest rate, which is one of the reasons it might seem like you’re getting a good deal.Unless you take them into consideration, you’re not really comparing different lenders.
Keep in mind that if you plan on staying in the house for a long time, paying an upfront finance fee might not be a bad idea. Otherwise, it’s probably best to avoid.
4. “What type of mortgage is right for me?” “
While most lenders assume you want a fixed 30-year term, a good one should take the time to review a number of different loan options.
“It might turn out that a cheaper 5-year ARM is a better alternative if you don’t plan on keeping the house very long or if you plan to refinance in the near future once your financial situation improves,” explains Robertson. “Or that a 15 year landline is totally manageable and better value for you as the owner.”
The bottom line: There is no one-size-fits-all mortgage solution. Inform the lender of your plans and ask them to present you the advantages and disadvantages of the different products.
5. “How much should I deposit? “
A good lender will be able to provide a variety of down payment options, depending on the amount of money you need to put in. Before choosing a mortgage, find out exactly how much you’ll need to pay up front, including closing costs like appraisal and title fees, property taxes, and points, if applicable.
Are you required to pay mortgage insurance based on your small down payment? If so, make sure you know how much of that is going to add to your monthly bill – and potentially to your closing costs as well.
6. “Why are mortgages refused? “
The lender offers you a great rate with a down payment that you can actually afford. Everything looks great. The last thing you want is to find out that the bank or mortgage company decided to give up your loan at the last minute. And yet it does happen.
Robertson recommends asking yourself why other loans tend to fail in order to avoid the same misfortune. “They might tell you because of credit, a new job, or a lack of seasoned assets,” he says. “Knowing why mortgages don’t make it to the finish line could be the key to bringing yours to the financing table.
7. “How long will the process take? “
When it comes to buying a home, timing is everything. You’ll want to make sure that the lender you choose can not only close your loan, but do so before the closing date specified in the purchase agreement.
That could mean looking for a mortgage originator with a record of efficiency. “Some lenders specialize in refinancing and may not be the best for an urgent home purchase,” says Robertson.
As with any major purchase, you definitely want to shop around. Bounce your list of questions from multiple lenders to determine who will give you the best overall value, not just the lowest advertised rate. Considering how much money and heartache you could save, you’ll be glad you did some homework before starting the process.
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