Want to have a smooth home-buying process? If you are using a mortgage, make sure to ask your lending agent these important questions…
12 Essential Questions to Ask Your Lending Agent
1. “What Type of Loan is Best for Me?”
There are numerous types of loans available to home buyers. The most common is a conventional loan, but there are FHA loans, VA loans, USDA loans, and even jumbo loans. Talk with your lending agent and describe your current situation and housing goals, and they will be able to guide you towards the right option for your future.
2. “How Much Will I Need for a Downpayment?”
The downpayment on your purchase can vary widely. Some loans, such as a jumbo loan, may require tens of thousands of dollars, while other loan products can be used with 0% down. (VA and USDA are common 0%-down options.) Ask your agent how much you’ll need for financing on your purchase.
3. “Are there any Downpayment Assistance Programs Available?”
On the theme of downpayments, you should also ask if there are any assistance programs that would be available to you. A good agent knows the local and national assistance programs, which may be available through private organizations of government agencies. They will not only know the programs, but will guide you on how to use them.
4. “When Will You do a Hard Credit Check?”
There is a form of credit check called the “hard check,” also known as the “hard pull.” This is the type of credit inquiry that will show on your credit report, so you should know when a lending agent will take this step. It won’t (in most cases) make a significant difference to your credit score, but multiple hard checks can impact financing. (Basically, lots of credit inquiries in a short period is an indicator of high risk.)
5. “What is the Interest Rate and the APR for this Loan?”
Interest rate and APR, while related, are two different factors on your loan. Basically, the APR is a number derived from a calculation of various factors, including the interest rate and all other fees divided by the loan’s term. For an adjustable loan, there is no way to perfectly predict the APR, and it does not account for early payment of the loan. Still, it’s an important part of your application.
6. “Would Discount Points Save Us Money on This Loan?”
Discount points are essentially additional upfront payments that you can make to reduce the interest rate on your loan. Depending on the amount, the rate, the loan length, and other variables, it may be useful. Ask your lending agent about discount points and if they would help save on the long run.
7. “What will be the Closing Costs?”
The downpayment is just one part of the overall upfront costs for purchasing a home using a mortgage loan. There will also be realtor fees, appraisal charges, and other costs associated with buying a home.
8. “What is the Difference Between Pre-qualification and Pre-Approval? (And Which One are We Doing Now?)”
They are similar, but in many regards they are quite different, and you need to understand these differences to have a smooth purchase process. Essentially, pre-qualification is the basic first step. It is a basic statement from the lender that if your financial and debt situation stay the same, they will write you a loan. It is not an official offer. Pre-approval requires more documentation and verifications, and usually takes into account more factors. Talk with your lender so you understand the differences and know which one is being completed at what time.
9. “Will the Rate on My Loan be Locked?”
You may be pre-approved for a loan at, say, 4.25%. So what if interest rates in general rise from the pre-approval to final closing. Many lenders, lending agents, and banks can offer locked in rates. Basically, this will secure the rate for when you are approved. Talk with your lender to see if your rate is locked, and if there are any fees for locking the rate.
10. “What is the Prepayment Penalty?”
Not all loans have pre-payment penalties, but at least when you ask you’ll know. This is especially important if you are planning on paying the loan early, so you don’t want to have any surprise. Pre-payment penalties are rare, but they do occur, and it never hurts to ask.
11. “Will there Be Mortgage Insurance and How can it Be Removed?”
Mortgage insurance is essentially an insurance policy that protects the lender against a default on the loan. So while it protects the lender, it is actually paid for by the borrower as an additional cost on the loan itself. Usually mortgage insurance (sometimes called “PMI,” as in “Private Mortgage Insurance”) is only about $20 a month, but this depends on the size of the loan.
Depending on the loan product, mortgage insurance may be a permanent feature. In other case, it can be removed. Usually, when a borrower has 20% equity, mortgage insurance is not required. So if you start with a 20% downpayment, you may never pay mortgage insurance. Once you reach 20% through consistent payments, you may be able to remove the fee. Talk with your agent about mortgage insurance, how much it will cost, and how (if ever) it can be removed.
12. “Once We Find a House, How Long Will it Take to Finalize the Loan?”
Some loans can be finalized quickly, while others will take longer. In some cases, it may depend on the workload of the lending agent or other professionals included in the process, such as appraisers or inspectors.
Sometimes a lending agent can only give a rough estimate, but understanding the time frame will make you a more informed buyer.
Get the Right Advice so You Can Make an Informed Decision
If you want to work with a lending agent who will deliver honest advice and reliable service, contact our staff today.
We’ll guide you towards the right loan for your home purchase, and we’ll make sure you are fully informed so you can make the right choice, not because we say so, but because you are knowledgable and informed!