How to Shop for Different Mortgage Lenders
You have been planning and saving for this moment for months, maybe years. It’s time to start shopping different mortgage lenders and finally get pre-approved for a home loan. But wait. How do you actually shop different mortgage lenders? What questions should you ask? How do you know which mortgage lender is right for you?
Why Do I Need to Shop for a Mortgage Lender?
Is it really necessary to shop for different mortgage lenders? Yes, absolutely, and here’s why: Not all mortgage lenders are created equally. Different mortgage lenders will offer different financing, products, policies, amenities, and different mortgage lenders may have slightly varying qualification requirements.
Whatever you do, do not settle for the first mortgage lender you contact. Every mortgage lender offers different products, policies, and amenities that may make or break your ability to get approved for a home loan. If you are rejected by one mortgage lender, don’t automatically assume you can’t get approved anywhere else.
Questions to Ask Your Mortgage Lender
If this is your first time purchasing a home, here are some questions you can take with you when you start shopping for different lenders.
What Will My Fees And Payments Be?
Fees and payments are typically lumped into the closing costs of your home loan. These fees mitigate the cost for the lender to process, approve (or deny), and finally fund your home loan. These costs include underwriting, recording your mortgage with the government, and any other origination fees.
What Types of Products Do You Offer?
The products a mortgage lender offers are the types of loans they offer, like conventional home loans, VA home loans, FHA home loans, or USDA home loans. Different types of home loans come with different requirements and benefits.
For instance, VA and USDA home loans do not require a down payment and are guaranteed by the US government. FHA home loans are also guaranteed in part by the US government and there are FHA programs that allow qualifying borrowers to receive down payment assistance grants.
Which Types Of Mortgage Terms Do You Offer?
Your mortgage term is how long you have to pay off your mortgage. The most common mortgage term is a 30-year term, which means you have 30 years to pay off your mortgage.
Your mortgage term will affect how large your mortgage payment is. A 15-year term will involve higher mortgage payments each month, but it also will help you build equity in your home faster. 30-year terms are the most common mortgage terms.
Which Type of Mortgage Fits My Budget and Goals?
After reviewing your financial information, employment status, income, and your personal goals, a mortgage lender will be able to help determine which type of mortgage will best fit your financial goals and budget restrictions.
What Are Your Credit Requirements?
Different mortgage lenders have different credit requirements for qualifying for a home loan. If you are rejected by one lender because of your credit score, it doesn’t hurt to shop around with different lenders to see if your credit meets the requirements of another lender.
Do You Offer Mortgage Points?
Mortgage points let a borrower secure a lower interest rate during the home loan application process. Mortgage points or discount points are fees you pay upfront to lower your interest rate on your home purchase or mortgage refinance.
A single discount point costs 1% of the mortgage loan. This means one point for a mortgage loan for $300,000 costs $3,000. Purchasing mortgage points lets you prepay on interest in order to have smaller monthly mortgage payments.
Will I Need An Escrow Account?
An escrow account is like a savings account that your mortgage servicer controls. With each mortgage payment you make, your mortgage servicer will deposit a percentage into your escrow account and then later use the funds in your escrow to pay for property taxes, homeowners insurance premium, and mortgage insurance premium.
Most lenders do not require their borrowers to have an escrow account, but an escrow account can help provide you with a better rate and peace of mind as a borrower.
What Is The Interest Rate And APR?
Interest is what your lender charges you to maintain your loan. Most homebuyers secure a 30-year-fixed-rate loan, which means their mortgage term is 30 years and their interest rate is fixed over the life of their loan.
If you have a 5% mortgage interest rate on a $300,000 mortgage, this means that you will pay $15,000 annually in interest. This is why rising mortgage rates can affect a borrower’s ability to qualify for a mortgage loan.
Keep in mind that there are ways you can offset the cost of interest, like paying a larger down payment, paying biweekly mortgage payments, or purchasing points.
Do You Offer A Mortgage Rate Lock?
A mortgage rate lock guarantees that your mortgage rate will not fluctuate within a specified timeframe before your closing date, usually within 30 to 60 days, to allow plenty of time for you to successfully close on your home.
This allows you as a homebuyer to financially plan without the fear of your mortgage rate increasing prior to closing and your mortgage payments increasing. Different lenders have different mortgage rate lock policies, so it’s important to ask them upfront if they offer a mortgage rate lock and if so, what their policy is.
Is It Possible To Buy A House Without My Spouse?
Different states in the United States have different laws concerning borrowers and their spouses. You will want to check with your lender and determine how involved your spouse needs to be in the home purchase process.
Do You Offer Pre-Qualification or Pre-Approval?
Pre-qualification provides the borrower with an estimate of what they will be able to borrow. Pre-approval tells the borrower the amount they can actually borrow.
As a borrower, pre-approval gives a definite loan amount you are eligible to borrow and helps you confidently shop for a home within a realistic budget.
How Much Down Payment Will I Need?
How much down payment is required to purchase your home loan will depend on a variety of factors, mainly the type of loan you are securing and your credit score. VA and USDA loans generally do not require any down payment. FHA and conventional loans typically require at least a 3% down payment.
The amount of your down payment also depends on your personal financial goals, whether or not you want to pay private mortgage insurance (PMI), and how much equity you want to have in your home when you purchase it.
What Will My Closing Costs Be?
Most first-time homebuyers anticipate the down payment when preparing to purchase a home, but there are other upfront expenses you will need to be prepared to pay for.
Is There A Prepayment Penalty?
A prepayment penalty is a fee charged by the lender if a borrower pays all or some of their mortgage early. Not all mortgages come with a prepayment penalty, so it’s important to ask your lender about this upfront, especially if you plan to pay some or all of your mortgage early.
Contact a Loan Specialist
Are you ready to get pre-approved for a home loan? Our loan specialists at VeteransLoans.com can determine your eligibility and get you pre-approved in a matter of minutes! Call 1 (888) 232-1428 to get speak with a loan specialist today!