If you're in the market to buy a home, finding a lender is one of the key steps in the process. You might want to speed things along, but it pays to take your time with this part. You could save thousands of dollars by comparing offers among multiple lenders and asking the right questions. Here's what every buyer should ask when interviewing mortgage lenders.
Questions to ask your lender
1. What types of mortgages do I qualify for?
Every lender offers different mortgage programs, which may include an assortment of conventional and government-backed loans. Within these two main options, you can choose your loan length and type of interest rate. A knowledgeable lender will know which type of loan fits you best, depending on your financial situation.
2. Which is best for my financial situation?
If you qualify for more than one program, understanding how they work will help you figure out which is best for you. Some mortgages require a certain percentage down, while other mortgages don't. A lender will guide you as they gather your financial information and details to make the best choice.
3. What are your interest rates?
Generally, a higher interest rate will result in a higher monthly mortgage payment — so it's in your best interest to shop around. The 30-year fixed mortgage rate reached 2.81% in 2020, a 50-year historic low. Every lender has a different way of calculating your rate, but they'll generally take market trends into account along with your credit score and loan amount.
4. What are my estimated closing costs?
Mortgages include several closing costs that buyers should understand upfront. The origination fee typically covers processing, underwriting and funding the loan. You also might pay for an appraisal fee, title search and title insurance, and prepaid property taxes.
5. How much do I need to put down on the house?
It's a common misconception that you must put 20% down on a home, but that's not always the case. Down payment requirements depend on the mortgage program. Some mortgages, such as loans backed by the Department of Veterans Affairs, don't require a down payment, while others only require 3% down.
But with most mortgages, you'll need to pay private mortgage insurance if you put down less than 20%.
6. Is down payment assistance available?
This is one of the most important questions to ask a lender because it shows which ones are willing to work for you. Down payment assistance programs offer grants, low-cost junior loans and tax credits to homeowners who meet requirements. In some cases, the money doesn't need to be paid back as long as you own and occupy the home for a certain amount of time.
7. Can I buy points to lower my rate?
A mortgage point is an optional fee you can pay the lender in exchange for a lower interest rate. Although you're paying money upfront, you get to keep that low rate for the life of the loan. One point is equal to 1% of the mortgage amount, and some lenders allow you to buy a quarter, half or whole points. The amount you save with each point will vary with each lender.
8. Will my mortgage be sold after closing?
Most mortgages are sold after closing, but some lenders still process and service them in-house for the full loan term.
9. Who is my contact during the mortgage process?
Finding out who will answer your questions throughout the mortgage process is always a good idea. You should find someone who responds to messages quickly.
It's no secret that buying a house is stressful, and 29% of those who buy and sell simultaneously say buying a house at the same time as selling is the hardest part of the process. Don't be tempted to go with the first bank you talk to, though. It is a more financially savvy decision to shop around with multiple lenders and find one that is best for your financial situation.
