It is worth asking a lot of questions
There is a lot to consider when buying or refinancing a home.
From loan types to mortgage rates, points and closing costs, it can be difficult to keep everything in order.
That is why it is important to ask your lender the right questions.
With a little skill, you can make sure that you fully understand your mortgage loan and its terms.
And you can find out if you're being offered a lot or a low price – two very different things.
Find The Best Mortgage For You (October 20, 2020)
16 Questions to ask a mortgage lender
1. What types of mortgage loans do you offer?
There are two main categories of mortgage loan: conventional and government sponsored.
The right type of loan for you will depend on many different factors – including your income, your down payment, the price of your home, your credit score, and more.
You may even need a special home loan if you have special circumstances.
For example, there are loan types aimed at buyers with low credit or low incomes, contract and self-employed people, those with no two year employment history, etc.
Your lender should be able to explain the different requirements for each loan, which one is best for you and why.
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2. Which mortgage loans do I qualify for? Are there any that I don't want to offer?
Each lender can choose which mortgages they offer or not offer.
Hence, it is important to find out if the lender you are considering offers the right type of mortgage for your needs.
For example, VA loans are among the best loans available. However, not all lenders can offer VA loans.
The same goes for other types of mortgage products such as USDA loans, jumbo loans, bank statement loans, and specialty loans such as teacher or doctor mortgages.
Don't assume that your lender can offer you the best loan. Do a little research yourself and ask your lender.
3. Can you walk me through my credit estimate?
The credit estimate (LE) is a three-page document that provides you with important information. including the interest rate, monthly payment, and total closing costs for your proposed loan.
Credit estimates replaced the Good Faith Estimation (GFE) in 2015.
Although the LE is generally easier to follow than the previous GFE, you still want your lender to help you understand the information provided on this form.
The numbers you see on your LE are crucial in comparing loan offers and finding the best overall offer for your mortgage.
4. Do you include credit rebate points?
Mortgage discount points are available to homeowners who wish to pay an upfront fee in order to receive a lower interest rate.
However, discount points are not mandatory. Sometimes the lowest price offered isn't the best deal when you have to pay a lot out of your pocket to get it.
Remember, if you only plan to stay in the house for a few years, the amount you spend on points can be more than what you save by lowering your interest rate.
However, if you plan to hold onto your mortgage for decades, paying rebate points can be well worth it.
Ask your lender to explain the credit rebate points in detail and how to compare your total borrowing costs with and without them.
5. Do you charge an application fee, credit report fee, or other up-front fee?
Some lenders charge application fees. The application fees are intended to cover the costs of processing your application for a new loan and usually include costs such as credit checks and administrative costs.
The application fee depends on the lender and the amount of work involved in processing your loan application. Some lenders do not charge a fee at all.
In fact, filing fees are illegal in many states.
However, ask about these costs before applying so you can be sure there are no surprise fees.
If you are in the purchasing phase or are simply looking to see if you even qualify for a loan, it may be best to obtain information from a lender with no application fees.
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6. What costs or fees do I have to pay before I close?
You may have to pay before the rest day. Make sure you know about these so that you have the money on hand and ready.
For example, most lenders require you to pay for your review at the time of service. Since your assessment is one of the first things required when applying for a mortgage, this fee is usually paid shortly after the loan application is completed.
Your lender should be able to provide any other fees you may have to pay prior to closing.
7. Do you calculate a tariff lock?
A mortgage rate lock is an agreement between you and your lender that the interest rate will stay the same until you close regardless of market fluctuations.
Understanding your tariff lock is important as it will keep your payment and loan costs predictable.
Many lenders offer rate locks for 30 or 60 days for free. Some lenders charge an extended lock-up period.
8. Do you have an interest rate floating option?
The option to lower the mortgage rate allows borrowers to set their mortgage rate with one caveat: if interest rates fall during the subscription process, you can lower your interest rates.
Be sure to ask about float down options as not all lenders offer them. Others may offer them, but have different criteria to qualify.
A float down option can be especially useful in a market where rates are falling and are likely to go down significantly before your loan is closed.
9. How long does it take for my loan to go from application to completion?
This question is important for several reasons.
If your lender gives an interest rate that is valid for 30 days but takes 45 days to complete your loan, the first thing you want to do is understand how this can affect you.
This applies to both buying and refinancing loans.
Another big reason for asking this question is that we are in a hot real estate market where properties for sale are getting multiple offers.
Your offer may not be as competitive if it takes your lender a longer period of time to complete your loan.
Closing times can vary widely depending on how busy a lender is at the time of your application. Knowing how long it takes to close can help you find the best lender for your needs.
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10. Do I have to pay fees for renewing the tariff block?
A traditional 30 year mortgage freeze period is typically 30 or 45 days, although some lenders go as long as 60 days.
If your tariff block needs to be extended beyond that, charges can be passed on to you.
Since renewal fees can be up to 1% of your total loan amount, you want to know who is responsible for the additional fees for renewing your lock.
11. Do you have any mortgage options where I can avoid paying PMI?
Mortgage insurance (sometimes called PMI) is designed to protect the lender in the event of a borrower default. This is required for most loans where the buyer is saving less than 20%.
Having to pay for mortgage insurance can be a sticking point for many homeowners. It often costs a few hundred dollars a month on top of your mortgage bill.
Fortunately, many lenders have special loan programs with no monthly mortgage insurance fee even when it is less than 20% down.
Ask your lender for more details. If a loan is not offered without a PMI, find a lender who does.
Find out if you qualify for a no PMI mortgage (October 20, 2020).
12. Can I cancel my mortgage insurance later?
If paying for mortgage insurance is a primary concern of yours, then you should ask yourself how it works with each type of loan.
Some mortgage loan products, especially the FHA loan, come with mortgage insurance regardless of the down payment. This can only be canceled if you later refinance another loan.
With conventional loans, the mortgage insurance should be canceled after a certain period of time or the loan balance should be repaid up to a certain percentage.
Your lender can give you basic guidelines on when to potentially cancel your mortgage insurance.
However, in three or five years from now, your servicer will likely be a different company than your original lender. Your potential servicer will decide how you can terminate PMI.
13. Do your loans have prepayment penalties?
A mortgage prepayment penalty is a fee that some lenders charge when you prepay all or part of your mortgage loan. This may be true if you ever choose to refinance at a lower interest rate.
The penalty fee is an incentive for borrowers to slowly repay their principal over the life of the loan so that mortgage lenders can collect more interest.
While lenders cannot impose early repayment penalties on FHA, VA, or USDA loans, other types of loans may have them.
14. How often should I expect updates about my credit process? And by whom?
Bad communication with your lender can make the process more stressful than it already is.
Most lenders have some sort of follow-up method for mortgage borrowers. Be sure to ask about them so that you and your lender have the same expectations.
Some lenders offer online status dashboards that allow you to see the progress of your loan. If you are concerned, reach out to a lender who offers on-demand updates.
15. Do you have any deposit support programs?
For aspiring homeowners who haven't saved enough money for their down payment, Down Payment Assistance (DPA) can be of tremendous help.
DPA programs offer grants or low-interest loans, some of which do not have to be paid back to cover your down payment and / or closing costs.
Some lenders may have access to certain deposit support programs and others may not. Some may be more experienced working with DPA and may be able to walk you through the process more seamlessly.
If you need DPA, learn about the options available in your area. Then ask your lender about the programs they work with and whether you qualify.
16. Will my loan be sold when I close?
Some homeowners are surprised to find out that their mortgage was sold shortly after closing.
The good news is that this is very common. Nothing changes in your loan term, your interest rate or your payment. The lender simply sold the loan to generate income so they could get more mortgages.
Ask your lender for more information about what will happen to your loan upon completion.
Conclusion: the best mortgage is different for everyone
Finding the right mortgage product is a big deal.
Choosing the best loan and lender for you can mean a difference of thousands or even tens of thousands of dollars over the life of your home loan.
So, before you sign up, ask your lender plenty of questions.
Your loan officer will help you with this, but only you can make sure that you have covered all of your own bases and received the best possible deal.
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