Finding a lender is often one of the first steps in buying a home! Your lender should be a valuable resource throughout the borrowing process to help you make informed decisions. Make sure that your lender can answer all of these questions:
1. What Types of Mortgages Do You Offer?
Not all lenders offer every type of mortgage! Fixed-rate mortgages, adjustable-rate mortgages (ARMs), government loans… Some lenders have access to unique programs that others don’t. Knowing your options can help you find the best fit for your financial situation and goals.
2. What Is the Interest Rate and Annual Percentage Rate (APR)?
This is critical—even a fraction of a point could significantly alter your monthly payment. APR reflects the total cost of the loan, including interest, fees, and other charges. Know what you’re agreeing to before you sign.
3. What Are the Closing Costs?
Closing costs include the down payment, loan origination fees, appraisal, title insurance, and more. Typically, they range from 3-6% of the loan amount, but this varies by lender and location. Different programs have different requirements, so it’s important to get a clear picture of these costs upfront.
4. Are There Prepayment Penalties or Hidden Fees?
Paying off your loan early could be a smart move, but beware of any penalties for doing so. Some lenders charge fees if you pay off your mortgage ahead of schedule. Make sure you understand all potential costs before you commit.
5. What Is the Loan Term?
The length of your loan will impact your monthly payment. For instance, a 15-year loan will have a significantly higher monthly payment than a 30-year loan. Your lender should help you find the best term for your financial capacity and long-term goals.
6. What Documents Do You Need for Approval?
To streamline and expedite the approval process, prepare in advance. Lenders typically require proof of income, tax returns, employment verification, and other documentation. Knowing what you need can save time and reduce stress.
7. Can You Lock in the Interest Rate? What Is the Rate Lock Period?
Interest rates can fluctuate significantly. To avoid the risk of rising rates, ask if your lender offers the option to lock in your rate. Understand the duration of the rate lock period and any associated costs.
8. What Happens If I Encounter Hardship?
Life is unpredictable! It’s crucial to know your options in case of unexpected events such as job loss or medical expenses. Inquire about temporary forbearance, loan modification, and other relief options your lender may offer.
By asking these questions, you can ensure that you’re fully informed and prepared to make the best decisions for your home purchase. A knowledgeable lender can guide you through the complexities of the mortgage process and help you achieve your homeownership goals.
