7 Things to know before choosing a mortgage lender
Purchasing a new home or property is exciting. And maybe you have already applied for a loan and even received more than a few attractive mortgage loan offers to help with purchasing your home. However, before getting overly excited and accepting any mortgage loan, you need to understand exactly what type of contract you are making a commitment to.
A mortgage is a major financial decision, so before signing on the proverbial dotted line, you will need to understand the loan agreement fully. To avoid any nasty surprises after the closing, it is best to be armed with all the necessary information in advance. Therefore, you should be sure to question each prospective mortgage lender thoroughly before deciding which loan offer to accept.
One of the first and most important concerns you will need to address concerning your mortgage is the interest rate. The interest rate is an instrumental part in calculating monthly payments for your mortgage, so of course, you will need to know the interest rate. Also, while you are deciding which offer suits you best, ask your prospective lender if they can lock in the quoted interest rate. Most lenders can do this for for a period of time – usually 30 to 60 days. However, be aware that sometimes there is a fee charged for this service. Be sure to get the quoted offer in writing.
Other interest rate concerns include the annual percentage rate (APR) and whether the loan is a fixed rate loan or adjustable rate mortgage. The APR includes the cost of interest and other miscellaneous fees charged over the period of the loan, so be sure to get an itemized list of what is included in the APR calculation. With a fixed rate mortgage, you keep the same interest over the life of the loan, but with an adjustable rate mortgage, the interest rate can adjust either up or down annually by a specific margin quoted by the lender. If you do not like surprises (increased payments) when interest rates are on the rise, then an adjustable rate mortgage may not be for you.
Many lenders are now allowing zero down payment as an incentive to help make home ownership more affordable to the masses. However, you should know that opting to include or not include a down payment will affect your mortgage. Choosing a small down payment or no down payment option will boost your monthly payment, because your lender will require that you carry private mortgage insurance (PMI) for a loan for which you pay less than 20 percent of the principal as a down payment. This helps the lender minimize their losses should you default on your mortgage. Ask lenders you are considering how your down payment will affect your mortgage loan.
When you are considering a new mortgage, your lender will need lots of documentation to help prove that you are worthy of the risk. Typically, you will need income statements, employment records, your social security number, and information about the home you want to purchase. To be sure that you have everything you need, ask your prospective lender for a list of information you will need to supply. Be sure to have all documentation in order to avoid delays or surprises.
You will need to ask each lender you are considering about the payment terms of the mortgage. For example, is automatic draft required or can you simply mail in the payment? Other things you may want to inquire about include grace periods and late fees. While considering payment terms, you should also ask lenders about their policy concerning paying off your mortgage early. Make sure that there is no substantial prepayment penalty for doing so.
Points are another concern when you are choosing your mortgage lender. Many lenders will allow you to lower the interest rate on your loan if you pay points in advance. One point is equal to 1 percent of the loan principal. Each point you purchase lowers your interest rate by a certain amount. Be clear about which points you are inquiring about, as some lenders also charge loan origination points.
There are also closing costs associated with many mortgages. For each lender you are considering, ask about getting an estimate of the closing costs for the loan. They are required by law to provide you with one within three days of your application. Closing costs can include some fees that you are not aware of, so make sure you go over each item thoroughly. If you are participating in a program that pays your closing costs, make certain there are no other hidden costs you are not aware of.
Time to Close Loan
Of course, last, but definitely not least, how long is it going to take to process your mortgage loan? This can be a time consuming process and can be frustrating if you are anxious to get into your new home. Therefore, be sure to ask each lender how long the process will take – they can usually give you a pretty decent estimate. Sometimes, the process is fairly quick taking only two weeks or so, but it can also take up to eight weeks.
If you keep these things in mind when you are searching for just the right lender, you are sure to be satisfied with the overall process.