Important Questions to Ask Your Mortgage Lender
Updated: Feb 19
Mortgage Lenders : Buying your own home is a major milestone in anyone’s life but the process can be a little daunting. There is so much to consider about home financing and your mortgage loan. Especially, it is the financing part where most people feel overwhelmed by the complexity of the lending industry and its unnerving jargon.
From the different types of loans to mortgage rates, it can be daunting to understand everything and keep it straight. So even when you have put aside your down payment and chosen a reliable mortgage lender, it is likely you still have gazillions of questions on your mind. All these intimidating questions can often keep people from taking the big leap of getting the right mortgage loan.
Therefore, it is important to get answers to the top mortgage questions before heading straight into home financing. Whether you are to buy a new home or refinance an existing mortgage, getting to the bottom of the ins and outs of mortgage loans is the key.
Questions to ask your Mortgage lender :
Here are 7 important questions to ask a mortgage lender before taking out a home loan!
Mortgage Lender : How Much Amount Can I Borrow to Buy a Home?
The amount you can borrow to finance your home depends on a number of factors. When determining how much amount you can borrow, lenders first consider your income level in comparison to your debt, your current sources of income, and your credit score. Therefore, it is important to talk to your lender and discuss your pre-qualification before you start looking for new houses.
How Much Down Payment Do You Need to Have?
While the most common answer to this question is 20%, but that might not necessarily true with all the lenders. So, you must never assume that the down payment will be 20% of the cost of the house. If you are well qualified for a mortgage loan you can pay as low as 3% of the total cost. But even then this option can come with its own benefits and downsides.
One of the downsides of this options is that you will have to pay for private mortgage insurance if you are paying less than 20% in down payment. This could mean you will have to bear more closing costs and an increased monthly payment until you successfully reach 80% loan to net worth ratio. Usually, lenders also offer the lowest interest rates, if you are up for paying 20% of the house’s worth in down payment.
Do I Need Preapproval or Prequalification for the Mortgage?
How a lender defines pre-approval or pre-qualification varies from lender to lender. There is no one set definition to define or differentiate the two. Therefore, it is best to get your lender to clarify the difference and ask them the best option for your financial situation.
Generally, a mortgage pre-approal is an official letter that discusses in detail how much your lender will allow you to borrow on the basis of your income, debt, and credit score. In contrast to this, pre-qualification is not an official document and neither does it require a credit check on the borrower.
What Is the Interest Rate You Are Charging?
One of the first few things that you need to ask your lender is a direct interest rate quote and the corresponding annual percentage rate (APR) for your mortgage loan. An APR gives you a comprehensive account of all the charges related to your mortgage loan. This will help you have a complete picture of the total expenses as well as a good comparison between different lenders.
Here is an interest calculator that can help you calculate your interest.
What Are the Costs and Charges I Have to Pay Before Closing?
There are several costs and fees that you need to take care of before the closing day. Make sure you do not miss any only because you did not know about them. Knowing about all the costs will also let you arrange the cash on hand to pay for them before closing. Your lender will also provide you information on any other fees that you might need to pay before the closing day.
Do You Offer Mortgage Points?
Mortgage points are basically discount points that help you prepay interest to get a lower interest rate on your mortgage. One mortgage point equals 1% of your house’s worth. So, for instance, if you are getting a $600,000 mortgage loan and you have three mortgage points, you will pay $18,000 in prepay interest. That said, it is also important to remember that if a lender is emphasizing a lot on points, that should be a red flag.
What is the Process for Closing?
Another important question to ask a mortgage lender is about the closing process. Not only will this prepare you for the whole process but it will protect your finances as well. Your lender will help you understanding the various documents that are involved in closing. This includes how long will it take for the process to complete and where does the closing occur (at home/law office/ lender’s office/online)?
Home financing is an important and profoundly expensive decision. Especially, for the first-time buyers, understanding and knowing different aspects of mortgage loans can be a bit challenging. In order to cut the best deal, it is imperative to go into this decision with as much knowledge as possible.
Once you have all the answers to your questions, all you are left with is a smart solution to budgeting and planning. And that’s where the Doctor Money app can organize all aspects of your finances to give you a better control over your financial situation and decisions. So download the app and let it take away the burden of budgeting from the process of home financing.