What Should a Home Buyer Ask Their Lender?
When you are first considering taking out a mortgage, it would be a good idea to make a list of questions which you want to know the answers to. Doing so, will save you a lot of time, and help you to arrive at the right decision before you sign on the dotted line. Getting a mortgage doesn't have to be a complicated process.
Many home buyers worry about this aspect when purchasing a home. When you ask the right questions of your lender things will go smoothly more often than not.
Below is a summary of the best questions to ask a lender when getting a home mortgage. By visiting the reference at Maximum Real Estate Exposure, you'll learn a complete list of what to ask when taking out a loan.
By getting the answers to all of these questions, you'll put yourself in a comfortable place knowing the approval should come through without any hitches.
Do I Need Documentation?
As with all financial transactions, you will need documentation. One of the most important questions you will need to ask up front is what the lender will need to give you a mortgage. You'll need to prove your identity as well as your financial resources. That means information such as tax returns and other crucial financial documentation need to be made available.
Not all lenders ask for the same information. If you have an idea what lenders you are planning to borrow the money from, it would be a good idea to check out what they need.
There are many different types of mortgage programs, and each of them has a unique set of documentation requirements. The mortgage broker you are working with should be able to provide you assistance up front with precisely what will be required.
Taking out a mortgage often seems like a laborious process. The better prepared you are, the faster you will be in your new home. Understanding how to pick a lender is also a vital part of the home buying process. There are many factors that should be considered when choosing a home mortgage lender. Remember, you will be stuck with the terms and conditions for quite a while.
The opportunity to refinance might not take place for a few years after home ownership.
Do I Need to Have a Good Credit Score to Take Out a Mortgage?
One of the first things you should do when you consider buying a property is to check your credit score. Contact any of the big credit agencies such as Equifax or Experian.
A better credit score will give you the opportunity to take out a mortgage at a lower rate of interest. In other words, a lender will consider a person with a good credit score less of a risk.
Borrowers who have the best credit scores generally get the best mortgage terms and conditions. It is essential to check to make sure your credit report does not have any errors. Mistakes can cause your credit score to drop. Over the years I have seen my fair share of credit report errors.
There are of course things you can do to increase your credit score before you apply for a mortgage. It is well worth the time and effort to make sure you have the best credit score possible before buying a house.
How Much of A Deposit Payment Do I Need to Make?
It all depends on what the terms on the mortgage, but you need to be prepared to put down at least 3 percent. When you put down less than that, you will need to get a specific mortgage you may not qualify for such as a VA loan or USDA loan. With these types of mortgages, both the borrower and the property have to pass specific guidelines.
For example, to get a VA mortgage, you need to either be serving or have served in the military. For a USDA loan, the area in which you are buying needs to be considered rural.
It is also worth mentioning that when you put less than twenty percent down, you'll be required to pay what's known as private mortgage insurance. PMI protects the lender in the event the borrower defaults. While it helps you get into the property you want for a smaller down payment, it is also a useless fee.
Each month you pay private mortgage insurance your throwing money out the window. For this reason, buyers look to end paying private mortgage insurance as soon as they can.
The more of a down payment you make, the less your mortgage will cost you. There should always be a balance. That all comes down to the cost of the property and mortgage terms. Keep in mind you may need to have cash available to make repairs to the property. Blowing your entire deposit amount to reduce the mortgage interest rate may not always be the best thing to do.
Should I Get a Pre-Approval?
If you are buying your first home, getting a mortgage pre-approval is almost an essential tool. This is where your bank or mortgage lender makes sure that you financially qualify for a mortgage. It is virtually the same as applying for a mortgage. The difference is that you are not taking out a mortgage against a specific property.
A pre-approval can save you time, and give you an advantage at the same time. Agents love the idea as it will make negotiations easier. It may even mean you will get a better "deal" on the property you are interested in purchasing. Sellers would rather deal with someone who is qualified to buy their home and has financing in place.
Keep in mind there is a substantial difference between being pre-approved vs. pre-qualified. With a pre-approval the lender will be verifying your income, employment and running your credit score. With a pre-qualification none of these things are done. Educated real estate agents who have been in the business for any extended amount of time are going to insist on a pre-approval.
Should I Go For a 15-Year or 30-Year Term?
A shorter term mortgage comes with a better rate of interest - that goes without saying. However, a longer-term mortgage will mean smaller payments per month. For instance, you can take the opportunity to put away money every month to pay off a lump sum on your mortgage every year.
The idea sounds quirky, but it does work. Find a bank account with a reasonable rate of interest into which you can make regular payments. At the end of the year or the fixed term on the account, use the funds towards paying off part of the mortgage.
Lots of homeowners will put an additional amount of money each month towards paying down the principle. There is no set amount you will be required to contribute. You have the flexibility to put as much as you are financially able to each month.
Most buyers will opt for a thirty year mortgage but retain the flexibility to put extra towards the principle.
Will My Mortgage Payments Go Up and Down?
More than likely your mortgage payments will go up and down over the years.Why? You will probably refinance. When refinancing you could increase the amount of money you are borrowing. On the other hand your mortgage payments could go down if interest rates decrease and you don't increase the principle. Some buyers will refinance but keep the length of their mortgage the same.
For example, you start with a thirty year mortgage and five years in you refinance because of an attractive interest rate. Some folks will opt to have the mortgage amortized over twenty five years rather than going back to a thirty year term.
Sometimes with the drop in interest rate the payments won't be significantly higher even though the mortgage term has been shortened.
Final Thoughts
It is always a good idea to be prepared for ANYTHING when it comes to mortgages. Being fiscally prudent is really essential as a homeowner. Having additional savings may protect you against some of those ups and downs.
Paying down principle can make a massive difference to the amount you ultimately end up paying for your home. The real cost of your home is what you pay over the life of the mortgage not the purchase price. Paying off your mortgage early can save you a lot of money.
Hopefully, these questions to ask a lender have been helpful. Best of luck on your home buying journey.
Other Helpful Active Rain Articles Worth a Look
- Why is having a buyer's agent important - see the value that a buyer's agent can bring to the table when purchasing a home. Never go directly to the listing agent when buying a house.
- Helpful real estate articles for buyers and sellers - you'll find a fantastic compilation of excellent real estate articles written by numerous real estate experts. When you are buying or selling a home, these articles will offer valuable assistance.
Use the above resources to make solid decisions when you will be buying or selling a home.
