A home mortgage is a common way for individuals to afford home ownership. Depending where you live, a new home may cost several hundred thousand dollars or more, and many are simply unable to buy such an expensive item without financing or without considerable effort made at saving for decades of their lives. A home loan may stretch out payments on the house for 20 to 30 years in most cases, providing you with affordable monthly payments. However, before you can apply for a home loan, you must first find the right lender to work with. Some home buyers are inclined to decide which lender to use by shopping for the best interest rate, but this is not the only aspect of the screening process you should consider. Your home loan lender will impact your stress level when applying for home financing, your closing costs, your overall buying timeline and more. Consider asking a potential lender these questions as you make your final decision about who to work with.
How Will the Loan Be Serviced?
It is common for lenders to sell their loans after closing to other parties, and it is also common for them to use a third party servicing company to handle collection of payments and other related tasks. While this is common practice, it can impact your loan payment experience in the years to come. If the loan representative states that another party will handle the loan payments, get the name of that company. Thoroughly research the company to ensure that they are known for providing great customer service to their customers.
What Are the Closing Costs?
Each lender has a different approach to establishing closing costs. Closing costs plus your down payment will equate to your total funds due at closing. You need to know that you have enough money available to pay the total funds due at closing. In addition, you may wish to compare different lenders’ closing costs to find the one that offers the best overall deal. In some cases, you can save thousands of dollars by shopping around and comparing closing costs before selecting a lender.
Should You Buy Down the Rate by Paying Points?
With a home loan, you are typically provided with an interest rate at par, and you may be given the ability to buy down the rate by paying points. A point equates to one percent of the loan amount. When you buy down the rate, you will have a lower monthly payment as well as less paid in interest over the life of the loan. Your lender ideally will ask you how long you intend to stay in the home when answering this question. Be wary of lenders who automatically recommend that you buy down the rate without asking about your long-term plans for home ownership. It is most effective to buy down the rate when you plan to be in the home for a long period of time.
Should You Pay Off Debts Before Applying?
As part of the pre-qualification process, your lender will calculate your debt-to-income ratio. If your ratio is very high, you may be requested to pay off some debts and close some accounts before or at closing. If your score is low or borderline, you may be advised to pay debts off several weeks or more before applying so that your credit rating may improve.
Are You a Strong Candidate for Loan Approval?
The last thing you want is to spend your time, energy and money going through the home buying process and loan application process only to find out at the very last minute that you do not qualify for the loan you need. You may lose some of your earnest money to the seller as well as money spent on the appraisal, property inspection and more. More than that, you may have become emotionally vested in buying your dream home, and it can be devastating to learn that you do not qualify for the loan you need to purchase it. Ask your lender up front if you are a strong candidate for loan approval. Pay attention to the key aspects of qualification that the lender states that you meet as well as areas that you may be borderline on.
While some home buyers may ask one mortgage lender these questions, it is best to ask multiple lenders these same questions. By doing so, you can more easily compare the answers to find the lender that seems to answer your questions more completely and honestly. Some may provide more elaborate and detailed explanations as a means to help you make a better decision, to guide you through the process and more. It is wise to speak with multiple lenders before you make your decision about which lender you want to move forward with.