Committing to a home mortgage is a great responsibility, and the biggest investment most people will make in their lives. The cost of homeownership will dominate your household budget for many years to come. It is essential to make sure you understand all aspects of the process. Your lender should be able to answer any questions you may have, from what kind of mortgage is right for your circumstances to how long it will take to finalize the loan.
What Role Does the Mortgage Lender Play in Your Home Sale?
A mortgage lender secures the loan you need to purchase a home from a bank, investor, or other lending institution. Your lender will look over all of your available financial history and information to evaluate your situation. A mortgage broker will help you make the right decisions for you and your financial future and works with mortgage underwriters to compile and file all needed documents to finalize the deal.
What Questions Should You Ask Your Mortgage Lender?
The decisions you make today regarding the purchase of your new home will impact your finances for decades. Never be afraid to ask your lender questions about the details and process of securing your home mortgage loan.
What Type of Mortgage is Best for Me?
Several different types of mortgages cater to homebuyers with various financial circumstances. After reviewing your finances, a mortgage lender will be able to help you determine which type of home loan is best for you. The broker can explain the inherent advantages and challenges that come with every kind of mortgage, including:
- Fixed-rate mortgage
- Adjustable-rate mortgage
- Interest-only loans
- Negative amortization loans
- Government-backed home mortgages, including FHA and VA loans
How Much Will I Need for a Down Payment?
The industry average for a down payment typically totals 20 percent of the total purchase price. Down payments of under 20 percent require additional private mortgage insurance that will be added to your monthly payments for the life of the loan. If you have excellent credit and a healthy, steady income, you may qualify for a down payment as low as three percent of the purchase price. The more you can pay for a down payment, the lower the interest rate your lender will be able to offer.
What Will the Interest Rate and Annual Percentage Rate Be?
The interest rate on a traditional fixed-rate mortgage will not change throughout the life of the loan. Most of the payments made early in the mortgage will go towards paying down the accruing interest. The annual percentage rate considers the interest rate and any other lender fees divided by the term of the loan. If you are looking at an adjustable-rate mortgage, ask your lender how often the rate is adjusted and a maximum annual adjustment and rate cap.
What Down Payment Assistance Programs Are Available?
Your local, state, and federal governments offer a wide range of down payment assistant programs to help those in need. Your lender should be able to guide you in the right direction and navigate the process of applying for assistance funds.
Will the Lender Be Doing a Hard Credit Check?
A hard credit check also referred to as a “hard inquiry,” is used by lenders to determine how much of a borrowing risk you pose. Having a hard inquiry on your credit can affect your rating and will show up on future credit reports. If you are getting quotes from multiple lenders, it is best that hard credit checks be performed in a short cluster of time to minimize any negative hits on your credit rating.
Will I Need to Pay Mortgage Insurance?
Homebuyers that put down less than 20 percent of the selling price are usually required to purchase private mortgage insurance (PMI) to protect the lender. The cost of PMI is often due at closing or set up as an ongoing charge throughout the life of the loan, or both. To avoid paying mortgage insurance, you can either make a larger down payment or shop around for lenders that can offer you a mortgage that does not include the insurance mandate.