Questions to Ask When Considering a Mortgage
According to LendingTree Chief Consumer Officer Brian Regan, knowing what to expect can help put you in the driver's seat.
Said Regan, "Taking the time to learn about the process is worth it, because you'll be a better advocate for yourself. As interest rates rise, you'll find lenders becoming more competitive to get your business, so be sure to compare multiple loan offers to find the deal that's right for you."
Here are some questions to ask when shopping for a mortgage:
- What is my credit rating? The better your credit, the more options you'll have when it comes time to choose your loan and an interest rate. Many lenders are willing to consider consumers with "less-than-perfect" credit, but will offset the increased risk with a higher interest rate or fees. The three major consumer credit bureaus are Equifax (www.equifax.com), Experian (www.experian.com) and Trans Union (www.transunion.com). Take the time to correct any inaccuracies on your reports.
- How much cash do I have on hand for a down payment and closing costs? Lenders generally require from five to 20 percent of a home's value as down payment, though 100% financing is available from some lenders (usually in exchange for a higher interest rate). You'll also typically need cash to cover closing costs, which are all the fees you pay when your loan becomes final. Closing costs can add up-often between two to six percent of your loan amount-so make sure you receive a "good faith estimate" in writing from your lender and review your closing statement prior to your closing.
Helpful Hint – Federal programs from Fannie Mae, the Department of Veterans Affairs, and others exist to help first-time homebuyers by reducing down payment requirements. Talk to your lender to see if you're eligible.
- What type of mortgage makes sense for my financial profile? In addition to the traditional 30-year fixed rate mortgage, there are dozens of mortgage loan products available, from adjustable rate mortgages (ARMs) to interest-only and negative amortization loans. Talk with your loan officer about your options.
- At what point in time can I lock in my rate? Once you've selected your lender, ask about locking-in your interest rate to protect yourself should rates increase while your loan is being processed. There may be certain savings for a lock-in under 45 days, and additional fees for a lock-in for more than 60 days. Know your options.
- What are the points and how do they affect my rate? Points are additional, upfront fees that may be charged by the lender. One point equals one percent of your total loan amount. Generally speaking, there's an inverse relationship between points and interest rates: the more points you pay upfront, the lower your interest rate, and the fewer points you pay, the higher the interest rate. You may also be able to lower your interest costs by paying more points upfront.
- What is my APR? The Annual Percentage Rate (APR) includes your interest rate, mortgage insurance, interim interest, points and certain other fees, and thus is usually higher than the base interest rate. Looking at the APR is the best way to compare loan offers on an "apples-to-apples" basis.
- What will my monthly payment be, and what exactly is included? Your monthly payment figure will likely include principal, interest, taxes and homeowners insurance (PITI), plus mortgage insurance if required. Remember to add condo or homeowner's association dues if applicable.
- What documentation do you need from me and when? For starters, you'll probably need to submit proof of income such as tax forms for the last two years, recent pay stubs; a list of employers; a list of account numbers and current balances owed to creditors; and current statements from your checking, savings and investment accounts.
EDITOR'S NOTE: LendingTree Chief Consumer Officer Brian Regan can offer additional background, insight and consumer tips relating to the home buying process. He is available for on-air and print media interviews.
About LendingTree, Inc.
Founded in 1996, LendingTree, an operating business of IAC/InterActiveCorp (NASDAQ: IACI), is the leading online lending exchange that connects consumers, Lenders, REALTORS®, and related service providers.