Questions to Ask to Ensure You Know Your Options
Purchasing a home may be the biggest investment you make in your lifetime. In 2016, more than six million homes were sold in the U.S. (that’s more than 1,600 homes every day!). Residential real estate transactions are just part of day-to-day business for mortgage lenders, but for you, the homebuyer, this may be a new experience.
It’s important to begin the home buying process with as much knowledge and information as possible. As you’re researching lenders, trying to find the best fit for you, here are some important questions you should ask:
What types of mortgages do you offer? When shopping mortgage lenders, you’ll find that different lenders offer different types of home loans. These can vary in amount, interest rate, term length and payment type. There are conventional loans (not insured by a federal agency) and government-insured loans. Some of the most common home loans include:
•Federal Housing Authority (FHA) — Government-insured by the Federal Housing Authority, this loan is best for clients with limited credit or income. Advantages include a low down payment and easier credit and income requirements.
•Veterans Affairs (VA) — Government-insured by the Department of Veterans Affairs, this loan is for eligible past or present services members and their spouses. Advantages include a low down payment, low interest rate and covered costs.
•US Department of Agriculture (USDA) — Government-insured by the US Department of Agriculture, this loan is for clients with a limited income in USDA designated rural areas. Advantages include 100 percent financing, eliminating the need for a down payment and assistance for limited income clients.
•30-year Fixed-Rate Mortgage (FRM) — A conventional loan offered to long-term homeowners looking for stability. Advantages include a long-term interest rate and monthly payment stability.
•15-year Fixed Rate Mortgage — A conventional loan for clients looking for stability and speedy payoff. Advantages include interest rate and payment stability, faster equity/payoff and less overall interest.
•Adjustable-Rate Mortgage (ARM) — A conventional loan idea for short-term homeowners and clients with future income growth potential. Advantages include a low initial interest rate.
•Jumbo Loans — A conventional loan for clients seeking higher value. Jumbo loans exceed the “conforming loan limit” set by the federal government, allowing the buyer to reduce the down payment for a more expensive home.
What type of mortgage is the best fit for me? Once you’ve submitted your mortgage application, your lender can make a recommendation on the best type of loan for you, based on your employment, income, assets, credit, debt, expenses, down payment and any additional financial information.
What is the estimated full cost of my mortgage? When shopping mortgage lenders, request a Good Faith Estimate (GFE), which provides a line-by-line estimate of all costs associated with your mortgage. This tool can help you compare the rates and costs associated with each lender.
What are the qualifying guidelines for this type of loan? While certain types of loans have certain guidelines (such as a VA loan is only for eligible veterans), your lender may have their own list of restrictions and will be able to tell you which loans you qualify for based on those guidelines.
Who will be the title and escrow agency? You may have the option to shop title companies to find one that could save you money on fees. You may also be able to do the same for an escrow agency and/or attorney.
What paperwork do I need? Be prepared to provide your lender with necessary documents, including proof of income (you’ll need two years of W-2s and paystubs) and assets (two most recent statements), personal identification and credit history. If you are self-employed, you’ll also need to have tax returns available. Be prepared for your home loan expert to request additional information throughout the approval process.
How long will it take to process my application? Once you supply required documents, the next steps will include an inspection, appraisal and final approval from the underwriter. In most cases, the process from application to close can take anywhere from a few weeks to a few months.
When will I close? Early in the process, your lender will give you an estimated closing date, but this date is not set in stone. Any number of factors could cause the closing date to fluctuate. Once your loan has been approved, you will be given the “clear to close,” and a final closing date, time and location will be set.
How much cash will I need at closing? At closing, you will need funds for your closing costs and down payment. Closing costs generally range from two to five percent of the purchase price of the home and include fees for pulling your credit report, document prep fees and fees for the inspection, appraisal and necessary surveys. Closing costs also include the brokerage commission, which is the amount paid to your real estate agent. These costs may be negotiated with either the buyer or seller agreeing to cover some or all of the closing costs.
What can I do to avoid delays? At the start of the process, your lender will provide you with recommendations to ensure the purchase process is speedy and smooth. These general recommendations include fully completing all required documents, being available to answer questions, being prepared to answer any questions and provide additional documentation, reviewing your credit report for errors and maintaining the same job during the process.
Will my loan get sold? It isn’t uncommon for mortgage loans, especially smaller loans to be sold to a new servicing company within the first few months after closing. If this happens, your lender will notify you in writing, so you will know where to send your next mortgage payment. The sale of your mortgage will not impact the overall cost of your loan.
Are you shopping for home lenders, or ready to take submit your mortgage application? Contact a PrimeLending home loan expert near you. We are happy to answer your questions and help get the process started.