Questions to Ask a Mortgage Lender
When it comes time to make an offer the first rule of thumb is to have your financing in order. Whether you are working with a loan officer or mortgage broker, it is essential to ask questions. The best way to prepare yourself for successful lending without any surprises is to ask your mortgage lender the right questions up front.
When you first start looking for a lender to help you buy a home, it is normal to feel like it’s a one-way street—you need the money, so anyone who will offer it to you seems like someone you should do your best to listen to. When buying your first house, many things can seem foreign to you. But in reality, you are an essential customer for your lender. Your business is critical to the company. It’s how they make their money and how they stay in business. So, it is worth stepping back for a moment to orient yourself correctly. As with any business deal, you must look for your best interests and act confidently. Understanding how to choose a lender is critical in shopping for a home. The terms and conditions you get on your mortgage will be crucial in your financial picture for years to come. It makes sense to do your best to vet the mortgage lender, the interest rate, and other loan terms.
The following questions should help you in what can often be a daunting process, especially if this is your first home purchase. They are questions you need to ask because you deserve to work with a lender that respects you and has something to offer beyond just a loan. They may be questioning you—but you are also interviewing them.
What Documents Will I Need to Get a Loan?
One of the most important questions you will ask your loan officer or mortgage broker is what documents they need. If the mortgage officer is worth their salt, they’ll tell you before you even ask. The mortgage documents needed to grant a home loan will differ based on your chosen program. Depending on the loan program you end up you’ll more than likely need these things to grant a mortgage approval.
Identification – either a driver’s license, passport, or official state/federal ID.
Income – including 30 days of pay stubs, your previous two years of federal tax returns, your last two W-2s, and proof of any additional income.
Accounts include bank statements for the last two cycles and investment or retirement accounts.
Property – a statement showing the settlement of your prior home if you had one.
Additional documents – forms such as a gift letter from a family member helping financially, landlord contact info (if applicable), letter of explanation for such problems as credit issues, and divorce-related documents (if applicable).
Which Types of Loans Are Best Suited for my Needs?
Watch out for loan officers who start peppering you with options before listening to your story. Different types of loans make sense for different types of borrowers. Give the mortgage lender your financial picture and have the loan officer explain what options are available and how they would meet or not meet your needs. There are tons of mortgage programs for buyers. Not every mortgage option is going to be suitable for your specific financial situation. Should you opt for an FHA loan? Does a conventional mortgage make the most sense? Are you a veteran? Maybe a VA loan will be your best option. Often, buyers ask if they should use an FHA loan or conventional. An exceptional mortgage broker will detail which loan programs make the most sense for you and why. Getting the best rate and terms for your needs will come down to asking the mortgage lender the right questions. The mortgage officer should then have the ability to plug in the best package for you. Buyers who rush into getting a loan can find themselves stuck with bad financing terms.
Do You Approve Loans In-House?
You will find various mortgage lenders, some with more capabilities than others. The loan officer is the person you interact with, but others will be involved, like the mortgage underwriter, who will determine if you get the loan. A company that approves loans in-house will be better equipped to adapt to potential hurdles in your mortgage. For example, if there is a problem with your credit report, an in-house underwriter could discuss it with the loan officer and get it ironed out. An out-of-house underwriter might deny the loan and move on with the following application.
How Long Will Mortgage Approval Take?
Finding out how long it will take to get your mortgage commitment is a crucial question to have an answer. When you write an offer with your buyer’s agent, one of the more essential terms in the offer will be the mortgage financing contingency date. It would be best if you had something that works with your chosen lender. There is no guarantee that a seller will grant a mortgage extension. It is essential to be on the same page with your lender with critical contract dates.
What Kind of Down Payment Do I Need to Get a Loan?
Lenders still desire the standard 20% down payment, but that does not mean it is required to get a mortgage, far from it. The need for a twenty percent down payment is a myth that’s traveled far and wide for years. Some lenders will work with you even if you have down as little as 3%. There are often 3% down conventional programs available. And with specific specialized loan programs like FHA or VA loans, you can also get a loan with zero to 3.5% down. The average down payment for first-time home buyers is around 6 percent, and for second-home buyers, around 11 percent. Whatever the circumstances, you need to know the requirements for getting the loan before moving forward. Keep in mind that it might be wise if you have twenty percent to put down. By having a 20% down payment, you will avoid paying private mortgage insurance (PMI), which can be costly. Those who put less than twenty percent down will see how much of a burden the PMI payments can be.
Are There Any Special Financing Programs Available to Me?
Another intelligent question to ask a mortgage lender is whether any special mortgage programs could benefit your situation. Approximately 2500 specialized programs around the country help buyers get a home. There are many options, most of which won’t apply to you. But maybe one or more of them do apply to you. An outstanding lender will know what is necessary to guide you to programs that fit your situation. If the one you are talking to has no information or seems to have little interest in helping you in this area, find another lender. Like any other business, there will be excellent and rotten eggs. If the mortgage officer is more concerned about “closing a deal,” you know, you’re in the wrong place.
Do You Charge an Origination Fee?
The origination fee is an expense charged by most lenders for setting up a loan. The lender you are dealing with may or may not have a fee. If they do, this expense may vary compared to the fee charged by other lenders. You may be able to negotiate the origination fee. It can’t hurt to try! Again, it is vital to keep in mind the total cost of the loan. If one lender has an origination fee higher than another, that should not preclude you from choosing them. It is all about the total financial output on your part.
If this information is new to you or you want a complete list of vital questions to ask a lender, please reach out to the Dream Team for our full article!
