You choose the right lender by asking questions – lots of questions! Here are some questions to ask your lender. Looking at homes for sale can be the fun part of buying a house. The real work comes when you’re picking a mortgage lender that can give you the best loan for your circumstances. Remember, you make your profit when you buy your home – not when you sell it. Get it right by picking the best lender with the best product for you!
Here are some questions to ask your lender as you comparison shop for your mortgage:
What is the interest rate?
The interest rate will be based on your loan and credit score, and determines your monthly payment. The lower the interest rate, the lower the payment. Improving your credit score can help lower the interest rate you qualify for. Ask the lender what you can do to improve your interest rate and can he/she help with that process. If you think that your interest rate is not yet where you want it to be, it is a great idea to start working with a lender BEFORE you want to buy a home. That way, you have time to improve the interest rate and get a better deal on your new home.
Does the lender recommend fixed rate or adjustable loans?
You should have lots of questions to ask your lender about whether you should choose a fixed rate versus adjustable. Fixed-rate loans have the same interest rate for the life of the loan, from 10 to 30 years. Interest rates on adjustable-rate mortgages, or ARMs, change after an initial period, such as a year, and then at regular intervals.
Ask how often an ARM rate will change, the index its tied to, and what the cap is on the interest rate during one period and the life of the loan. Make sure you can afford the higher rate. An ARM will have a lower interest rate than a fixed-rate loan, and can be a good idea if you’re not planning on living in the home for long.
How much will the monthly mortgage payment be?
Answering the first two questions will get you to this answer. It’s a number you should already have in mind before looking for a house, and should be an amount you feel comfortable with. Don’t go with the amount that your lender tells you that you can afford. That may well be much higher than you feel comfortable with. The choice is yours how much to spend each month.
Be sure to include other monthly costs, including insurance, taxes and, if required, private mortgage insurance, or PMI. This insurance is often needed if you don’t have a 20 percent down payment and is meant to protect the mortgage company if you default on the loan.