Buying a house is stressful enough, but when you add in the unfamiliar lingo and mounds of paperwork that accompany the mortgage approval process, the whole thing can go from daunting to downright overwhelming. But like most important life events that involve ventures into uncharted territory, a little preparation goes a long way in helping to prevent that white-knuckle feeling.
We spoke to loan and finance specialists to hone in on the eight questions every homebuyer should ask their lender. Whether you're a first-timer buyer or you already know the drill, these are the queries to have handy so you can keep up with the fast pace of mortgage financing—and keep your cool.
1. What interest rates can you offer me?
Interest rates refer to the amount of money you'll additionally pay the lending bank for servicing your mortgage. This number can also be affected by your credit score. Essentially, the better your credit score, the lower interest rates you'll be offered because the bank feels they can trust you to pay the loan back accordingly. "They're generally not negotiable," says Ava Sanel, a mortgage loan originator at Block Financial Resources. "They're giving you the best rate they have because they're trying to get your business."
2. Do the rates have any points?
Points equate to money you can pay your lender upfront for percentage points off your mortgage. Essentially, you can pay for these at closing to save money on interest in the long run. This is also referred to as "buying down the rate." For example, at Bank of America you can pay $2,000 for one point off your mortgage rate, saving you nearly $11,000 over the term of the loan.
3. Are you a mortgage broker, a loan officer, or none of the above?
Before getting into the nitty-gritty, be sure that you know whom you're dealing with—most likely a loan officer or a mortgage broker. A loan officer is employed by a direct lender (a financial institution—think banks, mortgage banks, and credit unions—that funds a mortgage) and thusly will only show you the loan products offered by their employer. A mortgage broker, on the other hand, is not tied to any one lender and is therefore able to "shop around" to present you with the best rates from multiple lending sources. Still, it's not a given that a broker will be able to find you a better interest rate than a loan officer, and brokers can sometimes charge higher fees, so try to get quotes from both.
4. How are you different from the other guys?
When you have multiple mortgage professionals vying for your business through the promise of similarly low rates and fees, take a closer look at the consultants themselves. "A little bit of research is very important," says Jim Russo, a senior loan officer with American Federal Mortgage. He advises verifying that the potential consultants hold the proper licensing; this can be done via the Nationwide Multistate Licensing System (NMLS) Consumer Access (loan officers) and the National Association of Mortgage Brokers (NAMB) directory (mortgage brokers). Reading online reviews, checking with the Better Business Bureau, and asking for input from within your social network can also help you hone in on the best mortgage professional for your particular needs. At the end of the day, however, you should feel good about whom you've chosen: "You need to find loan officer that you connect with on a business and most times, a personal level," stresses JP Hussey, producing branch manager at GMH Mortgage.
5. What can you do for me?
Yes, your lender is about to fork over a huge sum of money—just so you can land the house of your dreams—but their intentions aren't exactly altruistic. Mortgage lenders stand to gain a tidy profit from your loan in the form of the yield spread premium (YSP), closing costs, discount points, and other borrower-paid costs. Mortgage brokers and loan officers get their slice of the pie, too, usually through loan origination fees and salary bonuses, respectively. Make your broker or loan officer work for your business, especially if your credit score, down payment amount, and other factors prove you to be a desirable candidate for a loan. Once you get an itemized list of each lender's fees (better known as a good faith estimate, or GFE) and have narrowed down your list to two or three lenders, don't be afraid use the GFE from lender A to leverage a better deal from lender B, and so on.
6. How long will the process take?
Even if you're pre-approved and have an accepted offer, getting a mortgage processed can add time to the calendar. According to Realtor.com, the whole process takes around 30 days. Between getting pre-approved, getting a credit check, getting the home appraised, and the general paperwork that'll need to be filed, it can take a while.
7. Can I lock my rate?
By "locking" your mortgage interest rate, your lender is guaranteeing that the rate you were offered upon approval will still be available when you close on the home, protecting you from a rate increase. Be sure to ask the lender how long the lock will last (typically between 10 and 60 days) and if there are any costs involved. As for when, exactly, to lock your rate, your lender might not have the answer. That's because mortgage interest rates are known to change on a daily basis. The current trend, however, is that rates are rising and the federal reserve announced that there would be two more rate hikes by the end of 2018, so you may want to lock sooner than later. The good news? "Rates are still at historically low levels if you look at average rates for the past 20-plus years," says Russo.
8. Do I qualify for any government loans?
While the government offers FHA loans for those with lower incomes, there are other government sponsored loans available to those looking to buy a home that have other factors included. For instance, the Department of Veterans Affairs offers a better rate or refinancing options. The Department of Agriculture also offers similar deals to those moving into rural areas to help stimulate economies there, called the USDA loan. Depending on where you're moving to, there may be state or locally sponsored loans you may be eligible for.