With mortgage rates still historically low, now is a good time to start searching for a mortgage lender in order to secure your first home or upgrade. Think long term, however. A home loan is a 15- to 30-year financial commitment, so it’s important to balance the upfront process and service with some big picture number crunching. Here are the 9 questions you should be asking a range of mortgage lenders in order to pick out the one who best fits your ambitions.
The Signs of a Good Lender
In a competitive market, the most successful lenders are thinking in terms of customer lifetime value not a quick deal, and you get to reap the benefits as a borrower. Good lenders want you to become an advocate for their business, potentially for the next 30 years. That means that they are likely to offer additional services, such as credit monitoring and tools for improving your credit report and financial health.
Let them help you by asking these questions:
What assistance programs are available for first time buyers?
You might be eligible for loans or grants to help with upfront costs and repairs. Check with the US Department of Housing and Development for the programs available in your state, but put the question to your lender too.
What assistance programs are available for teachers, veterans, nurses etc?
Lenders aren’t necessarily losing out if you’re paying less for your loan. If you’re entitled to assistance as a veteran or essential worker, for example, your lender should be proactive in making sure you secure all available support.
Red Flags to Watch out for
While many mortgage lenders belong to familiar financial institutions, you’ll also find a wide variety of specialist lenders, particularly online, whose name you don’t recognize. How do you know whether to trust them? Start by treating interest rates that are way below the average with suspicion, especially in the current climate. Watch out too for hidden fees and penalties designed to recoup costs once you’re locked in.
Avoid the less reputable or less competitive lenders by asking these questions:
What fees and commissions will you charge?
Once you submit your loan application, you should receive your loan estimate within three days. Nevertheless, double check – in writing – with your lender what fees and commissions are due, both upfront and annually. Closing costs should be no more than 5% of the loan value, so if the costs you’re quoted look high, find out why.
Is the quoted rate fixed or adjustable?
This is a crucial question to confirm because, depending on your home value, your monthly loan repayments could easily become unaffordable following just a modest increase in interest rates. Ask your lender if you can ‘lock in’ your rate and what the options are for lowering your Annual Percentage Rate (APR). If you can increase your credit score, savings, or downpayment you will be able to access more competitive interest rates.
Your lender might invite you to ‘buy down the rate’ with mortgage discount points. With these, you pay more upfront for a lower APR overall. Your next question in that case should be for a full, transparent breakdown of the repayment schedule and fees in writing.
What penalties apply?
Avoid being caught out by unexpected fees for late payment or prepayment. There’s a temptation to visualize everything going to plan for the next 30 years, but the pandemic in particular has taught us that we need a contingency plan for economic events and other emergencies. Find out in advance how these would affect your loan.
What is the cost of mortgage insurance?
If you’re putting down less than a 20% downpayment on your home loan, you’ll normally be required to take out Private Mortgage Insurance (PMI). Ask your mortgage lender for a full breakdown of the fees, premiums and schedule.
Managing your Mortgage Lender Relationship
At the outset, you have a wealth of choices for where you can obtain your home loan. For example, you can choose to bundle your loan with existing services from your current bank or credit union or use a mortgage broker to find the best deal. But what matters, in the end, is the long-term relationship with your lender, so these are the questions to ask:
How many mortgage quotes did you review and how did you select the shortlist?
Just as you should be ‘interviewing’ a pool of potential lenders, so you should expect your broker or financial institution to review a range of options on your behalf. You are under no obligation to go with the lender your realtor or agent is partnered with. Let the numbers speak for themselves. Your mortgage broker should be able to illustrate clear financial logic behind the lenders they select and how they align with your circumstances.
How long will the process take?
It usually takes 30 days or more for a mortgage lender to complete underwriting, appraisal and other formalities. Ask for a clear estimate of how long they expect your application to last, supported with examples from similar customers in the past. Be wary if a lender offers a super quick process. That raises issues about due diligence and attention to detail.
Who is my contact?
Your relationship with your mortgage lender goes a long way to defining your peace of mind and financial stability for the next few years, or even decades. For that reason, you need to clarify whether you’ll be dealing with a dedicated loan manager, or team, or automated system. Don’t underestimate the expert advice a professional mortgage lender can offer, especially if your circumstances change during the lifetime of your loan.
The more information you have at your fingertips before beginning your search for a mortgage lender, the better empowered you are to make an informed decision. To find out more about our range of credit monitoring tools and services, start here.
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