Buying a home is a huge financial decision. Before you start your search, it’s important to be prepared and consult with a lender about your financing options. You want to feel confident that the mortgage lender you choose to work with is providing exceptional service and answers to all of your questions. When you first start shopping around for a mortgage lender, consider asking these questions:
1. What type of loan option best suits my financial needs?
Lenders offer a variety of loan options and each loan program’s features, such as interest rate, loan term and monthly payment, may vary. The most common types of mortgages are the Federal Housing Authority (FHA), Veterans Affairs (VA), Conventional, Jumbo and Reverse mortgage loans. Loan terms can be fixed, adjustable or interest only. Consult with your lender to discuss what your financial goals are, and he or she can walk you through the lending options available to you to find the perfect fit, for not only what you qualify for, but what you can reasonably afford.
2. How much money do I need for a down payment?
It’s a common misconception that buyers need a 20% down payment to secure financing for a home. While putting 20% down will likely get you a better rate and avoid the added cost of private mortgage insurance, it is no longer the norm. Down payments for FHA loans start at just 3.5% and Conventional mortgages at 3%. In addition, there are opportunities for down payment assistance. For more information on low down payment options, click here.
3. Should I pay points to buy down my interest rate?
Paying points means that you are paying an extra fee on top of typical loan fees, such as appraisal and underwriting fees, to get a lower interest rate. Essentially, you pay more upfront, but receive a lower interest rate which means you pay less over time. A point typically equals 1% of the loan amount. For example, buying a point on a $400,000 mortgage would cost an extra $4,000 at closing. The Consumer Finance Protection Bureau advises that “the longer you plan to live in your home, the more sense it may make to pay points.” When it comes to your particular loan and buy down options, consider these details and consult with your mortgage professional.
4. How much will I need to pay at closing?
There are various costs and fees associated with buying a home, especially the closing costs. Closing costs include a series of recurring and nonrecurring (one-time) fees. Your lender should provide you with a Loan Estimate. On the second page of your Loan Estimate you can find an estimation of the cash you will need to provide at your closing. Remember this is only an estimation. Lenders are required to provide you with your Closing Disclosure three business days before your scheduled closing which will clearly define all the costs of your loan and confirm the cash you will need to present at closing. For more information on closing costs, click here.
5. What can I do to avoid any delays in closing?
Each mortgage professional will have their own specific recommendations to avoid delays, but here are some general recommendations:
- Fully and honestly complete all required documents.
- Respond quickly to any requests from your lender for additional information.
- Get pre-approved before you begin your home search.
- Review your credit report for any errors, be prepared to explain any past credit issues, and work with your lender to request any corrections.
- Refrain from taking on any new debts or career changes during the process.
Buying a home is an exciting and sometimes overwhelming experience. It’s important to find a lender and mortgage professional who can explain all the aspects of your loan options. Reach out to an experienced loan advisor today to discuss your financial needs.