Questions to Ask Your Mortgage Lender
Buying a home is a big step. One that is exciting but scary at the same time. One of the first things you need to do is talk to a mortgage lender. Here are some very important questions to ask your mortgage lender while applying for a loan.
What is the interest rate on the mortgage?
Ask the lender for a loan estimate, which includes the interest rate, fees, and annual percentage rate (APR). This document allows you to compare everything from loan amounts to interest rates.
Are points included in the quoted interest rate?
Lenders can charge discount points and origination points. 1% of the loan amount would equal to 1 point. Discount points reduce the interest rate, are prepaid interest, and are tax-deductible. Origination points are fees charged by the lender to cover the costs of originating the loan.
What are the closing costs?
Closing costs typically range between 2% and 5% of the total loan amount. This covers fees at closing for services provided by the lender and other parties. This would include origination fees, mortgage points, prepaid interest for the number of days you’ll have the loan until the first payment is due), title services and fees, appraisal fees, survey fees, and tax services, and property taxes (from the day you close on the property until the time the next tax bill is due).
What is the minimum down-payment required on the loan?
Not all loans require the same down-payment. Typically, you will need to put 20% down or you may be charged a mortgage insurance premium until the principal is 80% or less of the cost of the home, increasing your monthly payment. However, there are programs available with a low down payment or even no down payment. For qualified veterans and active-duty service members, VA loans can provide 100% financing. FHA is also an option that only requires a 3.5% down payment.
Can I lock the interest rate and how much will it cost me to do so?
The interest rate offered isn’t guaranteed unless the lender can lock it down for you. To prevent fluctuations in the rate, you can lock it for a specified period. It’s important to make sure the expiration date extends beyond the closing date in case your closing gets delayed.
Are there any pre-payment penalties on my loan?
Some lenders will charge a prepayment penalty in exchange for a lower interest rate or lower out-of-pocket costs upfront. The prepayment penalty might have to be paid if you prepay on the mortgage or when you refinance or reduce the principal balance by more than a certain percentage.
What documents to do I need to provide?
Lenders require proof of income and assets, including bank statements, tax returns, W-2 statements and recent pay stubs. More may be needed to show your down payment and ability to pay closing costs. It’s important to put your financial life in a holding pattern until you reach the closing table because job changes, an increase or decrease in salary, new debt, a change in your credit history or change in marital status could delay your loan approval.