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You’re ready to start shopping for your new home, and that means shopping for the best mortgage as well. Knowing what to look for in a mortgage company is critical to getting the quality home loan you deserve. The questions you should ask your mortgage lender range from the obvious to the more obscure!
Whether you already have a house you’re interested in, or have sensibly waited to get preapproved before going house hunting, here are the 12 questions you should ask your mortgage lender before locking down your loan.
Not all lenders are created equal and you will see vast discrepancy in all the categories listed above depending on the quality of the company and the type of lender you choose.
For example, an online do-it-yourself lender may have low rates and costs, but they may not offer any advice on how to structure the loan. Their process also may be very difficult, or their guidelines may be overly restrictive.
On the other hand a full service lender may provide a higher level of service and advice, but they may also have significantly higher rates and costs. Ideally you can find a lender that provides a combination of competitive rates and fees while also providing quality service and advice.
When you buy a home, having the right mortgage for your finances and future plans is critical. The right mortgage company will be with you throughout the homebuying process, offering support and guidance that is in your best interest. Before you settle on a mortgage company to service your loan, there are some things you need to know.
Here are the dozen top questions you need to have answered before having a mortgage company start the loan application or preapproval process.
You don’t want a mortgage company that will simply present you with a single option loan program with one rate and cost option. You need to know all of your options, and make an informed decision.
Your mortgage lender should be able to provide you with a variety of options and advise you on which option makes the most sense based on your specific situation. Then they should present your options in a way to inform you rather than sell you, and allow you to pick the one that makes the most sense based on your financial goals.
While most mortgage lenders will tell you that 20% is the ideal amount for a mortgage down payment, the truth is that you can get a home loan with just 10%, 3.5%, or even 0% down. It all depends on what kind of loan programs you qualify for. Make sure you tell potential lenders if you are a military veteran or if you’re a first-time home buyer, as you might qualify for federally backed loan programs like a VA or FHA loan.
Not every homebuyer should put 20% down. If a borrower doesn’t have substantial reserves built up for an emergency fund or they have a big expense coming up (like needing to enroll their kids in college), a large down payment may not make sense. On the other hand a borrower living on a fixed income that isn’t likely to increase in the coming years may want to put more than 20% down to reduce their monthly payment.
Your mortgage interest rate should be specific to you and something that your lender can answer confidently. Remember that your interest rate is based on assumptions about things like credit scores. If you have less than perfect credit, a bump in interest might still make you a good enough risk to lend money to.
Discount points should never be factored into the base interest rate. If you see rates with discount points, those should be presented in comparison to rates without points. Your Loan Officer should be able to inform you as to how long it will take to benefit from paying points and which option is best for you based on the timeframe you expect to keep the loan.
A “hard” credit check can slightly impact your credit score. Multiple checks can have an even more significant effect. To dampen down the damage done, get all of your checks by different potential lenders done over a short time period, like two weeks, so the credit bureaus know you’re just house shopping, not scrabbling to open up a bunch of credit lines.
A hard-pull credit check will be required for loan preapproval or if you’re ready to move forward with the loan process; however, it should not be required if you’re just inquiring about current rates and costs. A transparent lender will provide you with rate and cost information making assumptions on your credit. Obviously if your actual score ends up being lower than the score you gave the lender to get the quote, the terms will change.
Ideally, the answer to this question is always “no.” An interest lock effectively freezes your quoted interest rate for a specific period of time, usually at least 30 days. Some mortgage companies guarantee it won’t change, operiod. Others do one better and don’t let increases affect the locked rate, but to let drops in rate benefit you.
If you have less than the traditional 20% down payment, and are buying a home with a program that allows a lower down payment, you’ll likely have to pay for private mortgage insurance (PMI). This is an extra amount you pay every month on top of your mortgage payment.
If you do have to pay PMI, ask about the possibility of discontinuing the insurance once your home builds equity and you’ve paid off a chunk of your mortgage. In many cases you can negotiate the cessation of PMI once a specific milestone is reached, or refinance to get away from the requirement.
Depending on the mortgage market at the time you’re buying a home there are also other PMI options that can potentially save you money and worth considering. Two primary options are Lender Paid PMI and Upfront PMI.
Which option is the best depends on your specific situation and the PMI premiums at the time you are looking to lock your rate. A quality Loan Officer can review your options and advise you on the best option when you’re ready to lock.
If you come into some cash, need to move and sell your home, or end up paying off your home early for any other reason, remember that lenders make their money on the interest they charge for your loan, which is earned over time. Make sure that if you pay your loan early, you don’t have a prepayment penalty clause that means you have to pay those years of interest.
Ask about lenders fees and closing costs. These are separate, and your mortgage lender will know what you’re talking about. They should disclose any loan origination fee as something you’ll have to pay the mortgage lender directly.
Closing costs will include fees from third parties, such as your appraisal, title search, and property taxes. Your closing costs will be tied to the rate you choose. If you choose a rate with discount points the costs will obviously be higher than a rate without points.
You can even choose a higher rate in exchange for the lender providing a credit to cover part or all of your closing costs. Which option is best for you depends on how long you plan on keeping the loan.
The ability to upload copies of your documents into a digital interface can make the application process much easier than if you have to depend on mail and fax. Find out if you have to sign in person as well – your lender might offer an e-closing option.
A good lender will have an online portal linked to their online application which makes uploading documents easy and also allows you to see what needs to be provided in one clean interface.
In the old days the norm was to have a Loan Officer that worked with you from beginning to end. The downside to this model is that things would fall apart if the Loan Officer was unavailable, sick or on vacation. Additionally as lending has become more and more complex, different parts of the process require different skill sets.
Find out who you’ll be working with and what happens if that person is unavailable. Ideally the lender you work with will have a team model that allows for another Loan Officer or Loan Processor to assist and take over while your main contact is unavailable.
This is extremely important during the house hunting process when you’re making offers on homes. No single Loan Officer can always be available, so having a team on-call is vital to make sure you can get assistance when necessary even on weekends.
Your closing date should be somewhat predictable, and your lender shouldn’t hesitate to give you at least a date range for when you can expect to close. Ask what sort of guarantee, if any, they provide for closing. A guarantee without monetary compensation if the dates aren’t hit doesn’t really mean much. Please note that some states prohibit a lender from making any guarantees that they can close on a specific date.
At Sammamish, we understand it can feel overwhelming when you’re looking for a mortgage lender. There are so many options, and each company will try to advertise with verbiage that will convince you to choose them.
Using this guide can help you go beyond the surface and find out what each specific mortgage lender really has to offer, and if they know their industry well enough to answer your questions promptly and correctly.
Sammamish Mortgage has been in business since 1992, and has assisted many home buyers in the Pacific Northwest. If you are looking for mortgage financing in Washington State, we can help. Sammamish Mortgage offers mortgage programs in Colorado, Idaho, Oregon and Washington.
Contact us if you have any mortgage-related questions or concerns. If you are ready to move forward, you can view rates, obtain a customized instant rate quote, or apply instantly directly from our website.
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