Will You Handle The Underwriting Process
The underwriting process consists of a lender evaluating the amount of risk associated with your loan application. It will decide whether or not to approve you as a borrower based on the probability of you paying the loan or defaulting on it, and if you were to default, if there is enough collateral to cover the cost. This process can take time if not done in-house, which is why its smart to ask this question upfront.
What Is My Interest Rate
You probably already planned to ask this mortgage question. Its the one benchmark we all understand. Or do we? Lenders can move the needle on your mortgage interest rate a number of ways, most of them involving additional fees.
But after talking to at least a couple of lenders, youll get an idea of a ballpark interest rate youll qualify for. Lets say its 5%. Well call that your payment interest rate because thats what your monthly mortgage payment will be based on.
Knowing that, youll move on to the next and very important question, about the annual percentage rate, or APR.
By the way, if youre considering an adjustable-rate mortgage rather than a fixed-rate loan, youll want to ask: How often is the payment interest rate adjusted? What is the maximum annual adjustment? What is the highest cap on the rate?
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What Are Mortgage Or Discount Points And How Do They Affect My Loan
One way to get a lower interest rate is through mortgage or discount points.
These are fees the borrower can pay the lender in exchange for a reduced interest rate and, consequently, lower monthly mortgage payments. Using this system, buying one point costs 1% of your mortgage amount .
If you plan to own your home for the long term, its worth asking your lender whether this is an option for you. If it is, make sure its cost-effective by comparing how much youd be saving each month against how much it costs to buy points.
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What Types Of Mortgage Do You Offer
There are various sorts of mortgages. Most new mortgages are advanced on a repayment basis, where your monthly payment consists of some interest and some of the amount you borrowed.
Some mortgage lenders offer interest only mortgages while others offer specialist deals such as offset or current account mortgages. Find out what options you have when speaking to your adviser to ensure that youll be advised whats right for you.
Whats The Difference Between Being Prequalified And Preapproved
Lenders often use the terms prequalified and preapproved interchangeably, but technically, they often mean very different things, so youll want to be careful.
In a typical prequalification, a lender may or may not pull your credit to get an idea of what loans you qualify for. If they do go through with a credit pull, theyll see both your median FICO® score and the existing debts reporting on your credit.
If they dont actually proceed with pulling credit, its very important to be as honest as possible with the lender about your credit score and any current monthly installment and revolving debt payments. The lender will also ask for verbal or written estimates of both your assets and income. From there, they are able to give you an idea of how much you can afford, but its really just a best guess.
In a proper preapproval, a lender will pull your credit. Theyll also ask you for documentation like bank statements, pay stubs and W-2s so they know exactly what the top end of your budget would be based on an assumed interest rate. Sellers and their real estate agents are much more comfortable with this stronger form of approval.
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Questions To Ask A Mortgage Lender
1. What types of mortgage loans do you offer?
There are two main categories of mortgage loans: conventional and governmentbacked.
The right type of loan for you depends on many different factors including your income, down payment, home price, credit score, and more.
You might even need a specialized home loan if you have unique circumstances.
For instance, there are loan types that cater to lowcredit or lowincome buyers, contract and selfemployed workers, people without a twoyear employment history, and so on.
Your lender should be able to explain the different requirements for each loan, which one is best for you, and why.
2. What mortgage loans do I qualify for? Are there any you dont offer that I might want?
Each lender can choose which mortgages it will or wont offer.
Therefore, its important to find out whether the lender youre considering offers the right type of mortgage for your needs.
For example, VA loans are among the best loans available. However, not all lenders can offer VA loans.
Dont assume your lender can offer the best loan for you. Do a little research on your own, and ask your lender.
3. Can you walk me through my Loan Estimate?
Loan estimates replaced the Good Faith Estimate in 2015.
4. Does your interest rate include loan discount points?
Do You Charge A Penalty If I Repay Early
Although some states have made it illegal to charge an early payment penalty, some states still allow it. You want to be aware of the consequences in case you try to pay the loan offer early.
Even getting the home refinanced or going to another lender could lead to penalty fees with certain lenders. With the number of choices in lenders today, youre probably better off skipping any mortgage companies that would charge a pre-payment penalty.
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Questions To Ask Your Mortgage Broker Or Lender
Elizabeth Weintraub is a nationally recognized expert in real estate, titles, and escrow. She is a licensed Realtor and broker with more than 40 years of experience in titles and escrow. Her expertise has appeared in the New York Times, Washington Post, CBS Evening News, and HGTV’s House Hunters.
Always ask questions of your potential mortgage lender before you commit to a loan. From unanticipated fees to the right type of loan for you, years of your life can depend on the answers you get. Continue shopping for the right loan until you find a mortgage broker or lender you feel comfortable with if you don’t like the answers you receive. Keep in mind, too, that the more your broker knows about you, the better advice, assistance, and accurate information they can give you. Don’t hesitate to share your personal information, including permitting the lender to run your credit report.
How Does Your Rate Lock Policy Work
When we are uncertain about interest rates, the rate lock can become a vital decision point in the loan. Many borrowers will want to have the comfort of locking their interest rate.
These are the questions you should be asking regarding rate locks:
- Do you charge a fee to lock in my interest rate, and if so, what will it be?
- How long will the rate lock be for?
- Will there be a cost to extend the rate lock? How much will it be?
- Will you give me the loan lock in writing?
How Does Your Interest Rate Lock Work
Because buying a home can be a drawn-out process and change daily, many lenders offer ways to lock in the interest rate they offer you for a set period of time. That way, if rates shoot up between the time you get mortgage pre-approval and when youre ready to fully apply, you wont find yourself unable to afford the same home you could at the beginning of the process.
Some mortgage lenders charge to lock an interest rate, and some dontand the charge can vary by the length of time its locked.
What Will I Need To Bring To My Application Interview
If youre looking to secure a home loan you will need to attend an interview. During the interview youll be expected to share a bunch of information about your financials.
Heres a basic list of the type of documents youll more than likely be required to bring along:
- Proof of identity
- Proof of income from your employer such as payslips
- Any letters regarding additional income
- A record of what you owe, including credit card debts
How Do I Qualify For One
When it comes to qualifying you for a loan, mortgage lenders will look at several factors, including income, property, assets and credit .
Your credit report is pulled to get a look at your credit score as well as your existing debts. Lenders look at the lowest median credit score of all borrowers on the loan for the purposes of qualification.
- For FHA, that score is 580 if youre trying to purchase, lower your rate or change your term.
- The qualification baseline for most conventional loans is 620.
- Lenders set their own policies for the VA at Rocket Mortgage you have to have at least a 620 score.
- USDA loans from Rocket Mortgage require a 640 score.
Beyond credit, income is also very important because its compared to your existing debts to get something called your debt-to-income ratio . In order to qualify for the most loan options, you should keep your DTI at no more than 45%, house payment included.
Finally, the lender will look at your property and assets.
In the property piece, an appraiser has to make sure the home is move-in ready, safe to live in, as well as assign a value to the property.
The lender will also look at your assets to make sure you have money for a down payment.
Depending on the investor in your mortgage and the loan purpose , you may be required to have reserves savings for a certain number of months of mortgage payments, should you experience a loss of income.
How Much Debt Do You Have
Debt is a significant consideration for lenders because it affects your financial stability. The more obligations you have, the harder it will likely be to keep up with that debt and pay your mortgage on time.
Debt is not necessarily bad when you are applying for a mortgagemost applicants have some debtbut the type of debt you have and how much debt you have are significant factors.
The lender will examine all your debt, including other mortgages, car loans, student loans, alimony, and credit cards.
You want to be in a situation where your monthly debt payments are a reasonable amount of your pre-tax income, preferably 36 percent at the most. Nerd Wallet has an excellent resource for calculating your income and debt ratios.
It is also essential to avoid making big purchases that require additional outlays, such as buying a car, during the period when you are trying to get a mortgage.
A car purchase can throw off your credit situation because it is such a sizeable purchase and probably means taking on a lot of additional debt.
In fact, buying a car during the loan process is one of the major mortgage mistakes to avoid discussed above.
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Am I Able To Send My Documents To You Electronically
Another important question to ask a lender: Does your company have the online platform to support a fully digital mortgage application? If they answer yes, you may be able to upload your asset and income documents electronically rather than faxing, mailing or scanning them. Having this feature can help speed up the mortgage process.
If you prefer an in-person experience, double-check that your lender has a nearby branch with loan officers on site to work with you.
How Long Will It Take Before You Close My Loan
In June 2021, it took an average of 51 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.
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How Much Income Do You Make
The amount of income you bring in each month is a significant concern for lenders. They need to be sure that you will be able to pay the mortgage each month.
Your income will be something you will have to verify using mortgage documentation, such as pay stubs, tax statements, and W-2s. It will be easier if you have a steady income as far as the application process goesbecause they can easily see that you bring in a certain amount of money each month, enough to pay the mortgage.
These items are all part of the mortgage documentation process to grant a loan. Use this resource for all the details you will need to provide a lender to issue loan approval.
If you do not bring in a steady income, like a salary or consistent hourly, you will need to provide more details about your irregular income.
The income question can be particularly in-depth when you are self-employed. As a self-employed mortgage applicant, you will need to provide additional documentation to verify your income over time plan on being questioned thoroughly as a self-employed borrower purchasing a home.
Are Down Payment Assistance Programs Available
Military veterans and first-time homebuyers may be eligible for special government-sponsored mortgage programs. Veterans and active service members can apply for a VA loan, which generally has a lower interest rate and doesnt require a down payment. And if you have a lower credit score and limited savings, a Federal Housing Administration loan could be an option. Ask your lender what you might qualify for.
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Other Members Of Your Homebuying Team
- A loan processor verifies the information on your loan application.
- An underwriter reviews your credit and finances to decide if your loan application is able to be approved by the lender.
- You may want a real estate lawyer to review your purchase agreement and represent you at closing.
- A tax advisor can help you understand the potential tax benefits of owning a home.
Do You Charge Anything Out Of Pocket
Not all lenders have the same fees. Some charge application fees, and many charge upfront appraisal fees. So, its important to shop around. American Financing does not charge anything out of pocket, keeping your focus on finding the right house and the right loan program. You shouldnt have to worry about making payments to a lender before youve found a home.
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Is The Lender Equipped To Approve Loans In
Underwriters review loans, then issue conditions before approving or rejecting them. Find out if your lender can handle its underwriting, or if this critical job is assigned out. VA and FHA loans typically take longer to process, but some lenders meet government requirements to automatically approve or disapprove a loan without sending it to the VA or FHA.
Down And Dirty: Questions To Ask A Mortgage Lender
When shopping for mortgage quotes and mortgage loans, we’re presented with a dizzying array of loan packages, promotions, mortgage rates, and lenders who’ll happily make us an offer. But sometimes, there’s very little difference between the actual loans themselves, whereas there may be a vast gulf of difference between the lenders and their follow-up customer service performances.
Here are three key questions to ask potential mortgage lenders before you enter into a business relationship with them regarding your home purchase or refinanced mortgage rate.
1. How long have you been in the mortgage loan business, and how long has your company been around?
Your loan officer may be a newbie, and that’s okay, as long as he’s a knowledgeable and professional newbie. But if the company he works for is the new kid on the block, it may not be around next year. Your loan could be passed along to another organization whose location or service doesn’t suit you.
2. What kind of loan do you have on your own home?
Ask what kind of loan he has and why, because insiders will generally pick the smartest mortgage loans and mortgage rates for their own properties.
3. What kind of educational experience do you have and what is your background in the mortgage industry?
As you would do with any professional, whether it’s a lawyer, doctor, or CPA, ask mortgage lenders to explain their qualifications to you until you’re confident and satisfied with their expertise.
5. How do you get paid?
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How Long Will It Take You To Fund The Loan
There is a lot riding on your home closing on time. Your purchase contract may have a closing date, but thats no guarantee your lender will fund the loan on time. Carpenter said the average closing time is 30 days, but some lendersâespecially banksâcan take longer. Asking for timelines and getting preapprovedbefore you begin the process may save you from costly headaches later.
Importance Of A Mortgage Broker
A mortgage broker steers their client towards the best mortgage lender for their needs. Choosing the right broker is key to achieving the goal of owning a new home because a good broker will provide insightful information on borrowing options and other critical must-knows.
The suitable broker has inside information about sensitive and actionable data concerning funding options that are aligned with their clients interests and needs. However, dont just take their word for it.
The only way one can really know whether the recommended mortgage lender is suitable for them is by asking loads of questions. There are two points to these questions.
One is to better understand the real estate landscape and second is to find out if the lender is a qualified fit. For example, seeing a local mortgage lender in Sonoma County is particularly helpful because they will provide tailored assistance suited to individual needs based on their experience in the community with Realtor resources as well.
Heres a compilation of four frequently asked questions by would-be homeowners. Also included are tips and advice that will likely help a buyer know how to approach a conversation with a mortgage lending firm.