You've finally narrowed your potential lenders down to a shortlist and are yet to make the all-important decision of who to pick as your mortgage provider. Here I equip you with a list of useful questions to ask your potential lenders in order to make the process easier, and hopefully much faster.
- What are the qualifying guidelines?
These determine whether you can even apply for a particular mortgage in the first place, and include credit worthiness and history, employment, income and assets. The good news is that first time homebuyer programs typically offer easier qualifying guidelines.
- What is the down payment?
Typically between 3 and 20% of the property's selling price, your down payment also plays a big role in determining the interest you pay on your mortgage. Putting a large down payment on a property will generally lead to more favorable terms, but those who put down too much as a downpayment run the risk of not being able to manage with the mortgage's monthly upkeep. To decide how much you want to spend on a house, check these mortgage basics.
- Which documents are needed?
Providing documents such as those which prove your income and assets are standard protocol, so make sure you find out what you'll need to provide so you can get everything in order.
- What is the interest rate?
You need to know this in order to work out how much borrowing the money will cost you, and it will be expressed as a percentage. Mortgage interest rates change daily depending on several national and economic factors, and if your credit rating is low this can also impact negatively upon the interest rate offered to you.
- Do I have to pay any discount or origination points?
Discount points (sometimes just known as points) are prepaid interest which you can pay to reduce the interest rate on your loan, therefore also reducing your monthly payments. Origination points on the other hand are not beneficial in any way, and are simply an extra charge by the lender for their services. Find out if and when you may have to pay for points before choosing a lender.
- Is it possible to lock the interest rate, and if so, when?
As mentioned in question four, interest rates can fluctuate. If an ongoing trend suggests that interest rates are rising then a prudent move is to lock your interest rate and maybe even some points (as mentioned in question five) also. Check if locking your interest is possible, and if so make sure to find out when you can do this and whether any fees apply.
- Is there a prepayment penalty on the loan?
Pre-payment can save you a great deal of money if it's a viable option later down the line. Many loans have a prepayment penalty in order to compensate for the money lenders miss out on when this occurs. The amount varies from 1% of the loan to as much as six months of interest. If there is a prepayment penalty find out how much it is and how it is calculated, and whether this could cause a major problem. If you already know that prepayment will not be an option for you this can work to your advantage: some lenders offer lower interest rates as a result of having prepayment penalties in place.
- What are the closing costs?
Another one of the hidden fees you may not have considered for your mortgage are the closing costs. Lenders are required to provide you with a realistic estimate of closing fees within three days of a mortgage application. Keep this in mind and make sure to find out the amount of these extra costs as soon as possible.
- How long will my loan application take to be processed?
This depends on a number of processes and can be subject to delays, such as if the underwriter discovers any credit problems. An estimate of 45 – 60 days is generally realistic when it comes to processing time but ask the lender for their estimate to see how it compares.
- What could delay approval of my loan?
If you've provided the lender with all of the information they require and everything is up to date there should be no delay. Make sure you inform them of any job changes or other changes which could affect the process, and ask to see if there is any scenario they would need to know about which could make the loan's approval process take longer so you can avoid this.
Asking these questions will help you make the right decision when it comes to finding the best mortgage to match your needs.