Closing on a home mortgage is one of the most important financial decisions you’ll make. But if you don’t know what to ask, or how much interest rates have changed in recent years, it can be difficult for anyone – not just first-time buyers and lenders/brokers.

The “questions to ask mortgage lender first-time home buyer” is a blog post that tackles the 18 questions you need to ask before closing a mortgage. The article will help people avoid common pitfalls when buying their first home.

One of your first steps toward becoming a homeowner will be to work with an experienced mortgage lender. A reputable lender might guide you in making a wise choice about a significant commitment.

These may make you feel more at ease when selecting a mortgage lender to assist you negotiate the challenging house purchasing process. If you want to know what questions to ask a mortgage lender, use this list.

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Source of the image: DepositPhotos.com.

How Much Can You Borrow, First?

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Most purchasers start daydreaming about internet real estate listings with the thought of how much they can borrow. The cost of a mortgage may be estimated using a tool called a mortgage calculator, which you may have already used.

But that’s just the beginning. A mortgage lender will assess a house buyer’s whole financial picture to determine the actual amount they may borrow. The lender may also provide suggestions for loans or programs based on the particular circumstances of each buyer.

Define a mortgage note now. It contains all the information regarding the loan, including the amount you were permitted to borrow, and is a binding legal agreement between you and the lender.

Source of the image: DepositPhotos.com.

2. How much down payment are you need to make?

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How much are down payments, another important query that your lender may assist you with answering? Although a lender may be able to assist homebuyers in purchasing a house with a significantly lesser down payment, such as 3 percent or 5 percent, you’ve undoubtedly heard that the optimum down payment is 20 percent.

A traditional loan (one not insured by the federal government) requires a 20 percent down payment in order to avoid mortgage insurance; however, reduced down payment requirements might speed up the home-buying process. There are several choices available for you and your lender to consider.

Source of the image: DepositPhotos.com.

3. What Are the Interest and APR Rates?

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The distinction between the interest rate and annual percentage rate may be explained by your mortgage provider.

  • rate of interest. The annual cost of borrowing money is expressed as an interest rate. It excludes all fees and charges for mortgage insurance.
  • APR. The APR, which includes the interest rate, points paid, mortgage lender fees, and other expenses necessary to get the mortgage, is a more complete depiction of what you will pay for the mortgage. It often exceeds the interest rate.

You must get a loan estimate from the lender that includes the interest rate and APR along with the other terms and conditions the lender is providing. Pay close attention to how the APR varies amongst loans. You’ll see the statistics change significantly when comparing the APR and interest rates for an FHA loan versus a conventional mortgage, for example. (This is just a current illustration.)

In this instance, a 30-year FHA loan has a lower interest rate than a conventional loan, but when all expenses and an upfront mortgage premium for the FHA loan are taken into consideration, the FHA loan’s APR is greater than the normal loan’s.

Photo courtesy of SoFi.

4. What Are the Variable and Fixed Rate Mortgage Differences?

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A fixed-rate mortgage (FRM) and an adjustable-rate mortgage (ARM) vary primarily in whether or not the monthly payment will fluctuate over the course of the loan.

  • An ARM has a slightly higher initial monthly payment than a fixed rate mortgage, but the rate is guaranteed for the whole period.
  • A mortgage with an adjustable rate will initially have a lower interest rate, which might rise when the index of interest rates rises. For purchasers who are certain they won’t be retaining the mortgage for long, this form of loan can be a better option.

Knowing how an ARM adapts is crucial to using one. How often will your rate change? What is the potential rise in interest and monthly payments with each change? Is there a limit to the maximum interest rate you may charge? When choosing between a fixed rate and an adjustable rate mortgage, a reputable mortgage lender can assist you in taking into account all these factors.

Photo courtesy of SoFi.

5. How many points are included in the rate?

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You may first be curious to know what mortgage points are. Mortgage points are charges made to a lender in exchange for a reduced interest rate. You can compare loan products correctly by finding out from your lender how many points are included into the rate.

Source of the image: DepositPhotos.com.

6. At what point may the interest rate be fixed?

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Lenders all have different rules regarding rate locks. To find out whether and for how long your rate is locked, look at the top of Page 1 of your loan estimate.

Make sure any agreement for a rate lock provides you ample time to finalize on your loan. For extending a rate lock, many lenders charge a fee.

Source of the image: DepositPhotos.com.

7. What Are the Projected Closing Costs?

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A loan estimate is one of the most significant papers you’ll get from your lender. An explanation of the interest rate, monthly payment, fees, and closing expenses for the loan you’re applying for is provided in the loan estimate. This paper might be given to you by your lender when you inquire about closing fees.

Typical closing expenses include:

  • assessment charge
  • origination charge for loans
  • Title protection
  • Before your first payment is due, prepaid expenditures like homeowners insurance, property taxes, and interest

Closing fees should range from 2 to 5 percent of the purchase price.

Source of the image: DepositPhotos.com.

Are There Any Additional Fees?

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All charges must be included by the lender in the loan estimate. Additionally, they must use the same standard form so that you may fairly compare the charges and fees charged by various lenders. Make sure to inquire about additional costs and keep an eye out for them on your loan estimate.

Source of the image: Wavebreakmedia.

9. When will the transaction be closed?

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Your specific situation will determine how long it takes to close on a home, but the average nationwide is 46 days.

It’s possible that a seasoned lender with a digital procedure may settle a loan more rapidly. Another thing to think about is how long it will take the lender to approve and handle the loan.

ISTOCKPHOTO / SARINYAPINNGAM, source of image.

10. What Might Postpone the Closing?

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24 percent of real estate transactions in the November 2021 National Association of Realtors Confidence Index survey experienced a delay in settlement. The following were the primary causes of the delays:

  • Issues with appraisal (21 percent )
  • problems in getting money (20 percent )
  • the environment or home inspection (11 percent )
  • Title or deed problems (9 percent )
  • Provisions in the contract for contingencies (7 percent )

Over 40% of the closings were delayed due to appraisal and finance problems, which were the main offenders. Despite difficulties with financing and appraisals, a competent lender may be able to close on a house. Make careful to inquire up front about how these difficulties will be handled.

Andrey Popov/iStockPhoto provided the picture.

11. What Are the Costs and Payments?

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The information is contained in a common form called the loan estimate, which is one of the cool things about getting a mortgage since 2015. All lenders utilize the form, which gives customers the chance to compare rates amongst lenders quickly and accurately. In this form, all fees and payments must be specified in detail.

MonkeyBusinessImages/iStockPhoto is credit for the picture.

12. How strong should your credit be?

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To qualify for a traditional mortgage, you’ll normally need a FICO credit score of at least 620, although lenders only look at this factor as one piece of the qualifying puzzle.

If you have a poor credit score, a lender can suggest an FHA loan, which needs a score of at least 580 to be eligible for a 3.5 percent down payment. An FHA loan requires a 10% down payment if your credit score is below 580.

A lender may be able to give the best rates and conditions to borrowers with credit scores over 740.

cnythzi, author of the image

13. Are Escrow Accounts Required?

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For the purpose of covering costs associated with the property you’re acquiring, your lender may set up an escrow account. Taxes and homeowner’s insurance may be among them. When annual payments are required, an escrow account may receive deposits from the borrower on a monthly basis, retain those deposits, and then distribute the funds to the appropriate parties. Escrow accounts are necessary in certain places and with some lenders.

Source of the image: DepositPhotos.com.

14. Do You Provide Prequalification or Preapproval?

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Different lenders have various procedures for vetting mortgage applications. Prequalification is a far more superficial examination of a buyer’s financial situation than preapproval.

A preapproval letter from the lender outlines the amount they are prepared to give you and aids in convincing sellers that you are a suitable buyer. Early on in the home-buying process, being preapproved may also assist you in identifying and resolving any possible issues with your credit report.

Recommended: What’s the Difference Between Prequalified and Preapproved? 

Source of the image: DepositPhotos.com.

15. Is There a Penalty for Prepayment?

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If you pay off your mortgage in whole or in part early, you may be charged a prepayment penalty. Picking a mortgage without prepayment penalties makes it simple to avoid them. Find out from lenders if the loan you want has any prepayment penalties. Additionally, the loan estimate will make note of it.

Photograph courtesy of fizkes/istockphoto.

16. What Date Is the Initial Payment Due?

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Your first payment, which is usually due on the first of the month 30 days after you close, may be made with the assistance of a lender. For instance, the first mortgage payment would be due on the first of the month after a 30-day period if you closed on August 15. (Oct. 1).

Every billing cycle, mortgage statements are sent out with up-to-date loan information, including the principle balance, payment schedule, and due dates.

Source of the image: DepositPhotos.com.

Is Mortgage Insurance Necessary?

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If you need private mortgage insurance, sometimes known as PMI, your mortgage lender will assist you in the process. The majority of conventional mortgages with down payments under 20%, as well as FHA and USDA loans, all need mortgage insurance.

It serves to shield the lender from risk rather than providing insurance for the buyer. A reputable mortgage provider may also give advice to customers on when to stop paying PMI.

Recommended: What is PMI & How to Avoid It?

Author of the photo: bernardbodo/istockphoto.

18. What Profit Is the Lender Taking From You?

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When describing the charges of the loan, lenders must be precise and transparent. Your loan estimate and closing documentation should include a complete disclosure of them. Under “origination fee,” you may find out how much the lender is charging for its services.

Nadasaki/Istockphoto is the source of the image.

The Lesson

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You could have concerns regarding down payments, APR, points, PMI, and other mortgage terms if you’re looking for a house loan or considering one. Don’t worry if you ask a lender too many questions; many buyers want guidance when shopping for a property.

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This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.

 

SoFi Loan Products SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636  Opens A New Window.. For additional product-specific legal and licensing information, see SoFi.com/legal. SoFi Home Loans Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information. Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances. Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.

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AlertMe

The “questions to ask before pre approval” is a list of 18 questions that you need to ask before closing your mortgage. The list includes questions about the property, interest rate, and any other information that may be needed for the loan process.

  • what questions to ask a mortgage lender
  • questions to ask mortgage lender before closing
  • questions to ask sellers at closing
  • questions to ask closing attorney
  • interviewing mortgage lenders
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