February 2, 2018 - 12:34 pm
Buying a house is exciting — and stressful. Getting a mortgage can be one of the most stressful aspects, so it helps to be prepared. Here are 13 questions to ask a mortgage lender, which will help you understand the homebuying process.
To ensure you get all the info you need as you’re making decisions and plans when buying a home, you need to know the right questions to ask. Here are important mortgage questions you should ask your lender.
1. How much house can I afford?
“Ideally, you should visit your lender before you visit your Realtor,” said Megan Coleman, loan officer at Movement Mortgage in Braintree, Massachusetts. “A loan officer can get you prequalified, so you’ll know exactly how much you can spend on a house. And sellers like a buyer who has already taken this step.”
Because this is one of the most important mortgage loan questions, make sure you ask it based on the amount of monthly payment you know you can handle. Before you go to a lender, analyze your budget and determine the amount you’re comfortable with — and maybe even take the time to get preapproved for a mortgage.
A rule of thumb is to spend 25 percent or less of your net income on your mortgage. That means if you make $100,000 a year and you pay $20,000 in taxes, your net income is $80,000 and you should spend $20,000 on your mortgage. That amount works out to a monthly payment of $1,666.
2. What kind of loan should I get?
Among questions for mortgage lenders, this one is important. The two basic types of mortgages are fixed and variable rate. A fixed rate has the same interest rate for the term of the loan, which might be 15, 30 or even 40 years. With a fixed-rate mortgage, your payments remain the same for the life of the loan.
If interest rates are on the way up, a variable-rate mortgage can start out low and rise — sometimes significantly — in the future. If you’re considering this type of loan, your mortgage interview questions should include asking your lender how high your payments could possibly go.
3. Are you a mortgage broker or direct lender?
Another one of the key questions to ask a mortgage broker or lender, this one will enable you to know exactly what he does. A mortgage broker will put together your application and “shop” it to different lenders. A direct lender will process the application himself, although he might still sell your loan on the secondary market once it has closed, according to Coleman. Be sure to ask all your mortgage broker questions up-front so you can be informed.
4. What’s included in my monthly payment?
One of the most common questions to ask a mortgage broker if you are a first-time homebuyer, the answer to this one should tell you exactly what you’re paying for. All mortgage payments include part of the loan’s principal plus interest.
Your payment will be mostly interest at first, but as time goes on you’ll pay less interest and more principal. Your payment, however, will remain the same. As you pay off more principal, the equity in your home will accrue faster.
5. Who pays the taxes and insurance?
Asking questions about mortgage payments is smart. Most mortgage payments include taxes and insurance, but some do not. If yours does, your mortgage lender will collect money as part of your payment each month and put it into an escrow account. When your real estate taxes and homeowners insurance payments are due, the mortgage company will pay the bills from your escrow account.
6. Will I have to pay private mortgage insurance?
If you put less than 20 percent down you’ll likely need to get PMI and add its cost to your monthly payment. Once the equity in your home reaches 20 percent you can eliminate your PMI and reduce your monthly payment.
7. What costs do I have to pay at closing?
One of the most important questions to ask about a mortgage is how much its closing costs will set you back. Closing costs can include an application, appraisal or home inspection fee and a wide variety of other miscellaneous charges. Make sure you know exactly how much your closing costs will be.
8. Am I paying points?
Points, sometimes called discount points, consist of prepaid interest that reduces the amount of your monthly payment. Each point costs 1 percent of the loan amount, so on a $300,000 mortgage, each would cost $3,000.
9. Do you charge an origination fee?
An origination fee represents the lender’s administrative cost to process the loan. Origination fees can range from zero to about 1 percent of the loan’s value. Because she will shop your loan to several lenders, this is one of the key questions to ask a mortgage broker.
10. Is there anything I can do to lower my rate?
“Most lenders have a variety of loan options, and they will try to match you with the best loan for your circumstances,” Coleman said. “But they may not know if you have the ability to make a larger down payment, or other options, unless you tell them. Asking what it would take to get a lower rate may open up that discussion.”
11. Can I lock in my rate?
Many lenders will offer to lock in the interest rate they quote when you apply — this definitely falls under the category of “what to ask a mortgage broker or lender” because it will affect your loan in the long run. If you get locked in, do everything you need to do to close your loan on time and don’t make any changes to your loan application because it might nix your rate lock.
12. How long will it take before you close my loan?
In November 2017, it took an average of 43 days to close a mortgage, according to Ellie Mae, a software provider to the residential mortgage industry. That figure represents the time from when you complete your application until you close. Your lender should agree to close in approximately that time frame.
13. Can you guarantee my loan will close on time?
“Closing your loan on time is very important,” Coleman said. “Make sure you understand what you need to do, and on what schedule, in order to get your lender everything they need to close your loan on time.”
For sure, there are some things you shouldn’t say to lenders, but knowing what to ask a mortgage lender will help you navigate the process of getting a loan and buying a home with confidence. Armed with these important mortgage questions to ask, you’ll be ready to call the moving company in no time.