Questions to Ask Your Lender
What music are you into? Do you have a nickname? What’s your sign? These are questions you may be interested in, but this is not speed dating. Given that, developing a relationship with a lender prior to house shopping is something you definitely should do. Experienced REALTORS® can point you in the right direction as they have proven track records of closing deals with lenders in their market. What specifically should you be asking the people who will handle your mortgage? It’s easy to get worked up with anxiety over what seems like a complex process. Understanding the basics and gaining some clarity can potentially save you thousands over the life of the loan.
What type of financing is best for me?
For starters, you should determine what kind of mortgage to obtain. Is it conventional or government-backed? Is it an adjustable or fixed-rate mortgage? If it’s adjustable, how often is the interest rate adjusted? If qualified, most buyers will be more comfortable with the fixed-rate, as it makes monthly budgeting much easier since your payment won’t change.
What is the APR?
The annual percentage rate is a crucial bit of information that you definitely need, and it’s different than the “rate” – it incorporates all the embedded fees in the loan into one digestible figure. It’s the standard figure buyers use if/when comparing lenders. Pro tips: You don’t want to see discount points in there, as these are “purchased” to lower the interest rate, and can be done later. Another question to ask here would be if there is a charge to lock in the interest rate (the cost of borrowing the principal)?
Is there a prepayment penalty?
Similarly, can you proactively make bi-monthly payments? We’ve noticed some big banks have gone back to making additional payment penalties, unfortunately. If you’re intent on reducing the principal and interest as quickly as possible, you’ll want to know how many years must pass before you’re allowed to make prepayments.
Is underwriting done in-house and what’s your turnaround time?
To ensure you have final approval on your loan before the closing date on the purchase agreement, you should verify your loan officer’s company does their own underwriting. This usually means “contract to closing” can occur in as little as 30 days, since everyone working on the loan is “under the same roof”. Along these lines however, you should be aware it’s very common for your loan to be transferred to a different servicing company after closing, so don’t be alarmed.
Am I pre-approved, or pre-qualified, and is there a hard credit check?
You want a pre-approval letter to be able to provide sellers. This means it has been underwritten and your assets verified. Lenders will likely need to do a hard credit check on you. To know what your lender will need to verify beyond your credit score, ask your lender what documentation of your assets they will need and how far back in time to go. Lastly, if you’re shopping lenders for the best deal, bundle the credit checks in the span of 30 days to lessen the impact on your credit.
Do you guarantee your closing costs?
This is a question to ask especially if you’re working with an internet lender or an out of state lender. You’ll want to be sure they back what they’re quoting you, in case they miss a closing fee due to unfamiliarity with our typical Minnesota closing costs.
Can we meet face to face?
Realizing how rapidly technology is advancing the way we conduct business, this is one situation when it may not be to your advantage to go all virtual. Most borrowers would agree that being able to meet their lender in person is reassuring. It can be comforting to put a face to the entity helping you with what is probably the largest transaction you will ever make in your life.
These are just a few of the questions that are relevant to discuss with your lender – consider this a starting point. From the agent’s perspective, it’s always enjoyable and rewarding to refer a buyer client to a lender who provides them a great experience on their way to home ownership. In this way, it does resemble matchmaking, and we’re happy to do it. Give us a call or drop us an email, and we’ll get you set up!