Important Questions To Ask Your Lender
Before you commit to a loan it is important that you ask these questions to your potential mortgage lender.
- How much can I borrow to buy a home?
The bigger question here is how much can you afford to borrow for a mortgage. A lender is prone to approve you for the maximum it believes you can afford. Looking at your financial situation and weighing if you have the financial capacity to buy a home must be always considered. Generally, lenders require that you’ll spend less than 28% of your pretax income on housing and 36% on total debt payments. Click here to find how much house you can afford.
- What type of loan is best for me?
Reputable lender will want to know more about you before giving you loan options. Ask your lender to explain what’s the difference between a fixed-rate and an adjustable-rate mortgage, interest only loans, and negative amortization loans. It will really help you a lot if you know how each loan would fit your personal circumstances.
- What’s the interest rate?
Ask your lender directly for an interest rate quote and the annual percentage rate for the loan. Don’t be afraid to shop around until you find the best rate.
- How many points does the rate include?
Mortgage points, also known as discount points, are fees paid directly to the lender at closing in exchange for a reduced interest rate. 1 point = 1% of your total mortgage amount or $1000 for every $100,000. This means you’re paying some interest upfront in exchange for a lower interest rate over the life of your loan. Be sure to ask your lender how many points are included in the quoted interest rate and what the benefits might be to buying more or fewer points.
- How much money do I need to put down?
Generally, the most common answer to this is putting down 20% but this is not mandatory. However, you must consider that you can get the best rate and terms of your loan if you put down a higher down payment of at least 20%. A lower down payment doesn’t disqualify you but if you put down less than 20% you will have to pay for private mortgage insurance. Click here for ways to save for a down payment.
- When can I lock in the interest rate?
Interest rates fluctuate and change daily, so ask your lender to lock your loan if you have reason to believe that interest rates are moving up. Ask if they charge a fee or if the lock in protect all the loan costs, and for how long will they lock the rate. Lenders will usually offer lower interest rates for shorter-term locks and higher interest rates for longer-term locks.
- What are my estimated closing costs?
Remember to consider the various fees associated with buying a home. Your lender should provide you with a Loan Estimate showing the approximate costs of your loan so you can budget accordingly.
- Are there any other costs or fees I should know about?
Your lender should give you a Closing Disclosure detailing all the costs associated with your loan. The more information you can collect up front, the more prepared you’ll be should you run into any unexpected expenses along the way.
- How much time do you need to fund?
Ask about the anticipated turnaround time and ask how long after final application approval will the loan fund. The average loan processing time falls between 21 and 45 days.
- Is there anything that could delay my closing?
Closing your transaction on time is important. It’s generally subject to the lender’s ability to close on time. While delays are normal, the best way to avoid them is to stay in touch with your lender and provide the most up-to-date documentation as quickly as you can.