Shopping for a mortgage is a big deal. Nobody is particularly well versed in the ins and outs of points, lender fees and closing costs simply because the industry is dynamic and most folks are only shopping for a mortgage once every five to seven years. It's hard to stay on top of the changes in the industry and it's hard to have enough repetition to really understand exactly what needs to be done. On top of that, being unfamiliar with the entire lending process could leave you in the precarious position of paying a little too much up front, or worse, paying too much over the course of your mortgage. That's why it's so important to shop for and develop a great relationship with a mortgage professional. I asked one of my expert preferred lenders, Chris Coates, for a list of 'must ask questions' when shopping for a mortgage. These questions will not only get you the best loan product available to you, but will also help you find and establish a long-term working relationship with a great mortgage professional.
Question 1: What is the rate and what lender fees available to me?
Quotes for loan closing costs vary substantially between lenders because "less than upstanding" lenders can quote a lower appraisal, title, interest due figure just to make the numbers look lower. Ask your prospective for a "Good Faith Estimate". Their lender fees can specifically be found on page two, box A of the GFE. Pay attention to box A on the GFE and the interest rate, the lender does not control any other costs. Then, if you're shopping for a mortgage, you can compare apples to apples.
Question 2: Is there mortgage insurance included on my loan and how much is it per month?
Depending on your unique financial situation, several different loan programs will become available to you. Mortgage insurance is an insurance policy which compensates lenders or investors for losses due to the default of a mortgage loan. Some loan programs require mortgage insurance, others don't. When shopping for a mortgage, be sure to ask if there is mortgage insurance, and if so, if it is included in the estimated monthly payment that was quoted to you. Depending on your rate, sometimes loans with mortgage insurance make better sense for you - it is not always a negative to include mortgage insurance on a loan.
Question 3: If the loan offered to me is an Adjustable Rate Mortgage, how long is the fixed period?
The nature of adjustable rate mortgages is that they adjust. Ask your lender how long the mortgage is fixed and when the mortgage rate will adjust and if there is a cap on the upward adjustments over a period of time. This may help you in planning your next move or perhaps help you in determining when you should refinance.
Question 4: If the loan offered is an ARM, ask, "What is the margin index my loan is tied to and the adjustment caps?"
These features of an ARM are lending 101 and if your lender can not explain them to you and provide adjustment scenarios, they are not providing honest advice or they simply don’t know what they are doing. ARMs get a bad rap, but in some cases, ARMs are a very good loan for some people. In other cases they can be an absolutely terrible loan for some buyers. Your lender should always be able to tell if you are a good candidate for an ARM or not.
Question 5: If I only qualify for a FHA loan, why is that, and is there anything I can do to qualify for a conforming loan?
FHA loans tend to pay lenders more money on a per deal basis. Because of this, I believe lenders will push FHA loans when they should be suggesting a conforming loan that is a better deal for the borrower but not always as lucrative for a lender. Sometimes FHA is the only program that works because FHA is more lenient on credit, job history, down payment, etc. Your lender should be able to tell you why an FHA loan is your only or best option. This is a very easy way to flush out a sketchy lender.
Question 6: What should I expect during the lending process, do you see any hurdles in my qualifications?
Too often a lender will tell you what you want to hear and hope for the best when the loan goes into underwriting. A good lender will tell you up front what they see as possible issues in qualifications and give you potential solutions that will be used if issues do come up. Remember credit is still tight for everyone, it’s been in the news now for 5 years and no one is immune. There can always be surprises along the path of loan qualification, but a good lender will always set the proper expectations in order to avoid crisis situations during underwriting.
Establishing a good relationship with a quality lender well before you even put an offer in on a home will be in your best interest. With the market moving so quickly, you do not want to rush while shopping for a mortgage or vetting a mortgage lender. The best Lenders, just like Realtors, will be much more informative and better educators, rather than utilizing their best sales pitch. Trust the ones who tell you the bad, along with the good, so that you can understand exactly what to expect, and have a much more satisfactory purchase.
Chris Coates is a leading mortgage provider and American Capital Finance, serving the Northern Colorado and Denver Metro area (not to mention all of Colorado and Wyoming). Should you need mortgage advice, education, or guidance, Chris is the man for the job. Give him a call at 303.831.9636 or email him directly at email@example.com.
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