If you’re in the market for a new home, you’ll want to be just as careful in picking a lender as you are in choosing a home. Loans and lenders come in all shapes and sizes. If you want the very best rate and terms, then make sure you talk with multiple lenders before deciding. Buyer agents will recommend talking with at least three different lenders. But if this is your first home mortgage application, then how are you to know how to assess each lender? Below are ten questions to help you do that. Be sure to bring a notepad to record their answers.
1.) What type of home loans do you offer?
Start with the most basic question first. There are many types of loans out there and you’ll want to know which ones your lender can offer. Some lenders offer a wide range of mortgage products, others specialize in only one or two. Based on their answers, you’ll want to do some research into the different mortgage products they offer. Once you’ve gotten preapproved, a lender should be able to advise you which mortgage type suits you best.
2.) What interest rate can you offer me?
While mortgage interest rates are standard across the country, the rate you’ll be given can fluctuate. Your given rate will depend on your financial history, credit score, size of your down payment and a host of other areas. However, your credit score will have the biggest impact on your given rate. Those with scores between 850 and 760 will get the best rates. You’ll also want to ask about the corresponding annual percentage rate (APR) for the loan. This will take account of fees and other related charges which makes for an easy way to compare different lenders.
3.) How much time do you need to complete a mortgage?
Most closings take about 50 days to complete. But in a hot market, you may need a lender that can get you a mortgage in 30 days or less. This thing to keep in mind is that some loan types will take longer to process. For instance, the FHA loan usually takes 30 to 60 days to finalize
4.) Do you do underwriting in-house?
The underwriting process is when your financial details are closely examined and scrutinized to determine whether you can be approved for the loan. This process can take about a week and sometimes longer if extra documents are required. Some lenders do their underwriting in-house, while others farm them out to third-party underwriters. While there are plenty of good lenders that outsource their underwriting, the process can sometimes take longer. When the underwriting is being done in-house the underwriter can communicate easily with the loan officer. This should make the loan application take less time if any problems are encountered.
5.) What documents will I need?
A mortgage application requires a lot of documents. The big three will be your proof of income and assets, personal identification, and your credit history. There’s a veritable mountain of more paperwork you’ll need so you’ll want to have a full list.
Extra Tip: Bring more than what’s needed when applying for your mortgage. For example, if they ask for the last three months of pay stubs, bring the last six.
6.) Is this mortgage fixed-rate or adjustable?
Make sure you understand if whether your chosen loan program is fixed-rate or adjustable. A fixed-rate loan is when the interest rate never changes over the lifetime of the loan. An adjustable-rate will change after an initial period of remaining fixed payments (the length of which varies by lender). Fixed-rate loans are usually preferred as they provide more stability. However, they usually come with a higher interest rate than adjustable-rate loans, at least at the start.
7.) Does the rate come with points?
Discount points (also known as a buying down rate) are fees you can pay the lender at closing to secure a lower interest rate. One point will cost you 1% of your mortgage value. However, there is no standard by how much a point will decrease your interest rate. It varies from one lender to another. Your mortgage may come with points included, along with the option of buying more. You can weigh the benefits of this by finding out how long it would take to recoup your investment. To do this, simply divide the cost of the points from how much you’ll save on your monthly payment. The result is the number of months it will take to make back your investment.
8.) When can I lock in my interest rate?
Interest rates can fluctuate widely. To protect yourself from rising rates you can lock in your rate at a certain point. This provides a guarantee of what your rate will be. However, this will come with a time limit, usually 30 days, by which time you’ll have to close. If interest rates are currently rising fast, then that time limit will go down. You’ll also want to ask about the specific terms of locking in your rate. There could be a fee for locking it in at a certain rate. You may also have the option of a float-down clause. This will allow you to get a lower rate if they fall but this will come with terms and conditions of its own.
9.) What will my closing costs be?
Don’t overlook closing costs. Every mortgage will have a set of fees tagged onto it that you’ll have to pay at closing. These can include, loan origination fees, appraisal fees, attorney fees and a bunch of other costs. Ask your lender for a loan estimate of the final and full costs of the loan. Compare this with other lenders and ask your buyer agent.
10.) How do you communicate with clients?
It’s good to have easy communication with your loan officer so you can respond quickly to requests for more documents and monitor the progress of your loan application. It’s also good if you can easily reach them if you have any questions. However, a lot of loan officers only work Mon-Fri. This can be a big disadvantage if you need to reach them over the weekend.