4 Key Questions
Often, shopping for a mortgage is more intimidating than shopping for the home itself. There are so many different types of loans, and the mortgage industry uses terminology that's not always as clear as it could be. Thankfully, there is a resource that makes navigating the mortgage application process a lot easier: mortgage lenders.
Before applying for a mortgage at any bank, take some time to sit down and talk to the lender. This gives you a chance to ask them some questions, learn more about the mortgages they offer, and learn more about mortgages in general. The following are a few questions you should ask whenever you chat with a mortgage lender.
What type of mortgage is right for you?
Sometimes home buyers pick a type of mortgage and apply for it. But there is a better approach. Ask the mortgage lender to review your basic finances, and then ask them to recommend the type of mortgage that is right for you. They may recommend a different type of mortgage than you were expecting, opening the door to lower interest rates or a lower down payment requirement. They may also save you the headache of being rejected after applying for a type of loan you don't truly qualify for.
How much of a down payment will you need to save?
Convention seems to state that everyone buying a home needs to save a 20% down payment. However, this is rarely the case anymore. Most conventional mortgages only require a 10% down payment, and VA loans don't require any down payment at all. It's nice to know how much you truly need to set aside, so you can better time your home purchase. Based on the prices of homes you're looking at and the type of loans you qualify for, your mortgage lender should be able to give you a fairly good estimate of your necessary down payment.
How can you get a better interest rate?
After looking at your finances, your mortgage lender should be able to tell you where you can stand to improve. They may tell you, for example, that you need to pay down some credit before you qualify for a lower interest rate. Or, they may tell you that you need more open lines of credit, advising you to open a credit card. Even a small difference in interest rate can have a big effect on how much you pay over the life of your mortgage, so it's worth taking your lender's advice and working toward a better interest rate.
What fees does the lender charge?
Most lenders charge what's known as a loan origination fee when you take out a mortgage. These fees vary, but they are usually around 0.5% of the borrowed amount. Some banks also have other fees associated with their mortgage loans. It's important to ask what these fees are so you can prepare to pay them. They are typically due when you close on the house. When shopping around for the mortgage, make sure you not only compare the interest rates different lenders are offering you, but also the fees they will charge.
Mortgage lenders are a valuable resource for anyone who is shopping for a home and wants to learn more about the financial aspects of that process. Most are more than willing to chat with clients and tell them all they need to know. So before you take out a mortgage, take the time to ask the questions above, and listen closely to the answers.