Being in charge of moving a family (even a family of one) can make you feel like a big-top ringleader. The spotlight is all on you. There are innumerable balls in the air. And at any moment, you’re sure you’ll slip off that wobbly tightrope you’ve been walking and pray that there’s a net to catch you. Surely, people don’t do this for fun, do they?
Circus performers may look like they’re taking their lives in their hands every day. But the best performers are well trained, well choreographed, and prepared for any contingency. That’s exactly the way you should go into your home purchase, too.
Don’t walk out into the center ring unprepared. When it comes to securing your home loan, that means understanding your finances and knowing what questions to ask. From the right type of loan for you to unanticipated fees, years of your life depend on the answers you get. Here are 23 important questions you need to ask your mortgage loan officer.
How much can I borrow for a home?
There are a number of factors that help you determine how much home you can afford. In addition to your income and budget, your loan officer will take into account your income-to-debt ratio. As a rule of thumb, no more than 36% of your pre-tax income should go to paying debt. So, if you have large student loans or car loans, that will affect your capacity to borrow for a home.
What is the difference between pre-qualification and pre-approval?
They may seem similar at first glance, but don’t fall for the sleight of hand. Pre-qualification and pre-approval do two significantly different things. To a seller, a lender’s pre-approval means more than a pre-qualification letter. If a seller knows your financing is secure, your offer is taken more seriously.
What types of home loans do you offer?
Not all lenders are created equal. There are conventional loans, government-insured loans, interest-only loans, home equity lines, and loans with rates that are fixed or adjustable. If you know what type of loan you want, or if your assistance program requires a certain type of loan, make sure it’s compatible with what your lender offers. If not, keeping shopping until you find the right lender.
How much down payment is required?
You’ve scrimped and you’ve saved. And you have a sizable nest egg for your home down payment. Then your agent explained what closing costs are. Now you’re not sure you can cover it. Well, the good news is that different types of home loans require different amounts of payment down.
Does the property or I qualify for down payment assistance?
Depending on the type of loan you want, your income, and your credit score, you may qualify for savings on your down payment and closing costs. There are more than 2,400 homeownership programs available across the country. Find out what special low down payment programs and accompanying down payment assistance programs your lender offers.
What is the interest rate and annual percentage rate on that loan?
Does the mortgage rate quoted include the interest rate and/or the APR? An interest rate may seem like a low number, but it could double the cost of your home over time. The APR accounts for your interest plus fees and other loan-related charges. That means you can use it as an apples-to-apples comparison among lenders.
What are the discount points and origination fees?
Origination fees are your tickets into the mortgage arena. Discount points equal a deduction in the amount of interest you pay on your loan. They’re also tax deductible. If discount points are available and you can afford them in conjunction with your down payment, it could equal big savings over time. 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.
What is the difference between a fixed-rate and an adjustable-rate mortgage?
A fixed-rate mortgage keeps the same interest rate for the life of the loan, which means your monthly payments stay steady and predictable. The rates on adjustable-rate mortgages change based on the market, so your monthly payment will go up and down over time. Most ARMs cover a 30-year term and start with an initial fixed interest rate for a specific period of time, usually five, seven, or 10 years.
Can I get a loan rate lock, and do you charge for that?
If you can lock your mortgage right now into a fixed rate, you should. As we report, mortgage rates change pretty regularly. Right now, rates are at a 30-year low, but there’s nothing stopping them from doing trapeze acts over time—and taking your mortgage payments with them! By locking your rate, you prevent it from changing over time.
Do I need an escrow account?
Does your loan program require you to open an escrow account? An escrow account is a type of neutral savings account that holds money for prepaid property taxes and insurance premiums. They are usually optional for conventional loans but are often required for government-backed loans. If you’re required to have one, ask how much money you’ll need to hold in escrow. What are your options for paying shortages or getting a refund if you overpay?
What is the loan estimate?
Your loan estimate includes all the costs and fees associated with your loan. That means lender fees and third-party vendor fees: appraisals, credit reports, escrow where applicable, pest inspection reports, recording fees, taxes, and the title policy. Lenders are required by law to provide you with a loan estimate after you have completed your application. But you can ask for an estimate of these costs up front before you apply for the loan.
Will I have to pay mortgage insurance?
If your down payment was less than 20%, you will probably have to pay mortgage insurance. Ask how much that will cost, if it’s an upfront or ongoing charge, and if there are other loan programs that don’t require it. Sometimes you can set up “lender paid,” mortgage insurance. If that’s available, make sure you understand whether those costs are passed on to you in other ways through your monthly payments.
What will my monthly payment be?
Every mortgage payment includes the principal and interest. If you’ve set up an escrow account, it can also include your property taxes and homeowners insurance divided over a 12-month period. If you have mortgage insurance, it’s handled the same way. Homeowners association fees can also be included in your monthly payment. Collectively, you can use the acronym PITIA to remember all the facets of your monthly mortgage payments: Principal, Interest, Taxes, home Insurance, and homeowners Association fees.
Is there a penalty for prepayment?
Sure, you signed up for a 30-year loan. Then you did the math and figured out that if you make two extra payments a year, you can pay it off several years sooner. But does your lender charge you for paying off the loan before it fully matures? Will you be hit with a penalty if your principal balance decreases or if you refinance your mortgage? Make sure you clearly understand the terms for prepayment.
Are you doing a hard credit check on me today?
Lenders perform a “hard” credit check or a “hard pull” to give you a firm interest rate quote. However, that kind of check shows up on your credit report. If you are shopping around for lenders, try to minimize the impact of these checks on your credit score. If you can, try to confine multiple hard pulls to within a tight time period, like a week.
Are you equipped to underwrite and approve loans in house?
Underwriting is the process lenders use to verify all the information you provided and make sure you qualify for the loan. Some lenders have underwriters in house, while others assign out the process. It’s important to know who will be handling the underwriting and how soon you can expect updates. VA and FHA loans typically take longer to process. But some lenders meet government requirements to automatically approve or disapprove a loan without sending it to the VA or FHA.
What is the processing time for this loan?
After the time it takes to underwrite and approve the loan, you have to wait again for it to be processed. The national average loan processing time is around 43 days, but it can fluctuate considerably. In order to secure a closing date with the seller, you’ll need to understand how long it typically takes for your lender to process a loan. Also ask if there are any anticipated obstacles that could hold up the process.
Do you guarantee on-time closings?
Getting to closing on time is as important to the home seller as it is to you. That’s why your purchase contract centers around that date to close escrow. But if your lender isn’t capable of jumping through flaming hoops to get you there on time, should you really be working with that lender? Ask whether your interest rate will increase if your lock-in expires and what happens with any additional expenses you might incur.
Is there anything that could delay my closing?
Between you, your lender, the seller, inspectors, attorneys, and a car full of clowns, there are lots of people involved in making sure your home closes on time. Delays are normal, but many can be avoided. Ask your lender to estimate when you’ll close and to stay in touch with up-to-date documentation. Also, ask about what purchases you should avoid in the meantime that could affect your loan approval.
What other costs will I pay at closing?
We’ve covered lender fees, origination fees, and interest rates. Don’t forget to ask about other closing costs that are associated with buying a home. Closing costs usually run 3–6% of the total value of your loan. These will be outlined in your loan estimate, but the sooner you know about them, the better equipped you are to make decisions about your lender. Check out our guide to closing costs.
What else do I need to bring to the closing table?
In addition to a certified check, there are other things you need to bring on closing day. Typically, you’ll also need a driver’s license or other forms of ID. But it’s important to communicate with your lender about what else you need to bring to the closing table in case they require other specifics.
How often do you communicate after I close?
Communication is vital through the closing process. But it remains important throughout the life of your home loan. Does an account representative remain available to you? Is there an online platform where they post notifications? Can you expect to receive valuable homeowner tips and information to help you manage your mortgage? Establish your service expectations up front and gauge how eager the lender is to meet them in order to create a clear point of comparison among lenders.
Will you sell my loan?
Once upon a time, lenders would hold on to your mortgage and collect their money over 30 years as you made payments. Now, the vast majority of mortgages are bought by major mortgage investors. Your mortgage may end up being bought by Fannie Mae, Freddie Mac, or FHA, but that doesn’t mean your relationship with your lender is over. If you ever have trouble making your payment, the servicer is the one you call that can go over your options for potential relief. So, knowing and trusting your servicer is incredibly important.
Ready to Take Center Stage?
With these questions, you’ll have what you need to be the star of your home purchase. But if you still have questions about your home loan, we’re here to help.
At Beverly-Hanks Mortgage Services, we make financing real estate easy—no clowning around! That is why we are staffed with local financing professionals dedicated to prompt, personal service. We offer a broad menu of financing options, very competitive rates, and customer service that is second to none.
Find out exactly what you need to get a mortgage. Make a mortgage inquiry today!