10 Questions to Ask Your Mortgage Lender
You’ve found a few lenders you’re interested in, or maybe you’ve already been pre-approved for a mortgage. The next step is to start your formal mortgage application, but before you do that, it’s important to make sure you have the right questions to ask your lender. Here are the first 10 questions you should ask your mortgage lender:
What is the rate and annual percentage rate (APR)?
Even if the lender has already given you a rate, your first step should be to find out the exact interest rate and annual percentage rate (APR) for your loan. The APR is a way to compare loans from different lenders because it takes into account the interest rate as well as other fees and costs related to the loan. If your lender has given you an adjustable rate, make sure to ask about the rate cap (the most the lender can charge), how often interest rates can change, and how much they can change each year.
How much of a down payment do I need to make for this kind of loan?
Each lender will ask you to pay a different amount of the loan up front, and those amounts can be quite different. If you have good credit, you might be able to get a mortgage loan with as little as a 3% down payment. For example, if you want to borrow $200,000, you will only have to put down $6,000. If you don’t have great credit, your lender might ask you to put down 20% or more. Since the down payment is a necessary part of getting a mortgage, it’s important to know exactly what the lender wants before you continue with the application process. This is cash you’ll need at the time of closing.
What are discount points and origination fees?
Discount points, or just “points,” are fees you pay up front to lower your loan’s interest rate and, in turn, your monthly payments over the life of your loan. If you pay more points up front, you will pay less interest over the life of your loan. Another good thing about points is that you can write them off on your taxes. Origination points are another type of upfront payment, but they won’t save you any money. Origination points are a type of fee you pay a lender for the time they spend looking over your loan and getting it ready for you to use.
How much will it cost to close?
When everyone is talking about the interest rate, the APR, and the down payment, it’s easy to forget about the closing costs. After the lender agrees to give you a mortgage, you’ll have to pay these fees. They include appraisal, surveying, credit checks, title insurance, taxes, and recording fees.
Are there fees if I pay off my loan early?
Some lenders will charge a penalty fee if a borrower pays off all or part of the mortgage before the end of the loan term. For example, if you are approved for a 15-year mortgage but pay it off in 10 years, the lender might charge you a fee. Some states don’t let lenders charge these fees, and in states that do, the fees vary from lender to lender. During the application process, your lender should be able to tell you if there are any fees for paying off the loan early. And remember that penalties aren’t always set in stone. For example, if you choose a loan with a penalty, your lender might offer you a lower interest rate.
What are the rules for qualifying?
Each type of loan will have its own rules about who can get it, based on things like credit score, work history, level of income and assets, and so on. Some government-backed programmes and programmes for first-time homebuyers, like FHA loans and VA loans, have flexible requirements. Other loans, like jumbo loans, which are for loans of $500,000 or more, have stricter rules.
What kinds of papers do I need to bring?
Your lender will probably ask for personal information like your social security number and driver’s licence or state ID card, proof of income like pay stubs and tax returns, bank or investment statements, and other financial information. If you forget to send in a required document, your mortgage application could be held up. So, it’s important to find out what paperwork your lender needs to process your application and to make sure you send everything in on time. As a general rule, the more proof you can show, the more likely you are to be approved and to get a good rate.
Can I lock in a certain rate of interest?
Interest rates can change every day, so if you think they will go up, you can ask your lender if they can lock in the rate they offered you. Some lenders will charge a fee to lock in a rate, but not all will. You might want to ask the following questions of your lender: Is there a charge? Does the lock affect all of the costs of the loan, or just the rate? When does the lock’s time run out?
How long will it take for my application to be processed?
Depending on your lender, it could take anywhere from a few weeks to a few months for your application to be processed and approved. In addition to asking how long it will take to process your mortgage application, you may also want to ask if there are any things that could cause your loan to be approved later than expected. As a general rule, you shouldn’t change jobs or do anything else that could affect your finances or job while your application is being processed. After all, if you’ve given your lender proof that you work for a certain company and make a certain amount of money, and these things change while you’re applying, you’ll probably have to give the lender new proof and wait for them to process it.
Do you promise to close on time?
If your lender doesn’t close on time, you might not be able to close escrow or have to pay extra fees for things like changing the date you have to move out of your current home or finding a short-term rental. You should ask your lender if they can guarantee a closing date so you can make plans. Some lenders will even pay you if they can’t close by the date that was agreed upon.
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