Six Questions You Should Ask Mortgage Lenders

Six Questions You Should Ask Mortgage Lenders | Syler Custom Homes

Buying your first home may seem like a scary process, but it’s also a fulfilling learning experience and a big step towards financial security. There’s no right way to begin the home buying process, but the lending process is a good start. Consulting with lenders first will help you narrow down your budget, understand your credit, purchasing power, and specify what homes you can afford before getting in over your head.

A good lender will not only answer client questions, but will do so promptly and with clarity. Here are some key questions to ask:

WHAT IS THE INTEREST RATE?

You should ask your mortgage lender for a quote on the interest rate. Compare interest rates among lenders and settle for the lowest rate that you qualify for. Keep in mind that the interest rate, the mortgage balance and the loan term determines your monthly payment. The lower your interest rate, the smaller your monthly payment.

HOW MANY ORIGINATION OR DISCOUNT POINTS CAN I PAY?

A point is a fee paid to the lender at the closing in exchange for a reduced interest rate. For instance, one point is equal to 1% of the loan amount. Your lender may charge discount points, origination points, or both. How many points are included in the interest rate, and what are the benefits of buying more? Discount points are prepaid interest and are tax-deductible, while origination points are fees charged by the lender to cover the cost of originating the loan.

IS THERE A PREPAYMENT PENALTY ON THE LOAN?

Planning to pay your house off sooner than your loan term? Some lenders charge for that. Once contracts are signed, lenders regulate the payoff terms of your loan. Paying a mortgage off early can unfortunately result in an expensive penalty. Prepayment penalties are often 80% of six months interest. Ask your lender if they have one, and plan in advance.

HOW CAN I LOCK IN THE INTEREST RATE?

Scoring a great interest rate is half the battle; you’ll want to lock in the interest rate because rates fluctuate. If the rate rises, the homebuyer will not be impacted, but if the rate falls, you may not be able to take advantage of the new low rate. Ask for your lender’s loan processing time to ensure your rate is secure during a rate lock.

WHAT ARE THE CLOSING COSTS AND DOWN PAYMENT?

Months or even years before a home purchase, prepare your finances for the down payment. This is important because the average down payment on a home can run you 20% of the value of the home. Closing costs are less expensive (but still pricey), and may include loan-origination fees, appraisal fees, attorney fees, and other additional fees. Get a written estimate from your lender within three days of applying for the loan.

WHAT MIGHT DELAY MY APPROVAL ON THE LOAN?

Delays are often times unavoidable. Unsent papers, missing signatures, and any change in employment status, an increase or decrease in salary, or even change in marital status can cause delays. Regularly following up with your lender can help speed things up, and you’ll soon be on your way to homeownership!