Ten Questions to ask your lender when buying or refinancing a property

When you apply for a loan, your lender will look at several things:* Down payment amount* How long you have been employed in your current position* Whether you have the funds on deposit for your down payment and closing costs* Your income-to-debt ratio and your credit report

Lenders nowadays place much emphasis on the credit report. Credit bureaus compile a record of debts from credit card companies, banks, department stores, and other firms. This information appears on your credit report, so it shows whether you pay your bills on time. Lenders develop credit ratings based on how well you manage this function. The higher your credit score, the more flexible lenders will be in loan approval and specific requirements. A credit score of 680 and above is usually considered a strong borrowing candidate. Scores lower than 630 are generally considered high risk and frequently fall under sub-prime loan programs.

When you meet with lenders, ask how they decide if you are a good credit risk. It is likely to be from a credit report. Lenders can order the credit report for you and discuss your score. If your credit is less than sterling, they can usually offer suggestions on how to strengthen your credit position.

Ten questions to ask lenders:

1. What is the interest rate on this mortgage?To determine exactly what you’ll pay over the term of the loan, you need to know the rate. Rates change quickly, and if your credit is less than perfect, you may not be offered the lender’s lowest figure.

To effectively compare different lenders’ programs, ask for the annual percentage rate (APR) of the mortgage interest, which is generally higher than the initial quoted rate because it includes some fees. But beware: the APR found in advertisements can be misleading. Mortgage lenders don’t always include all the fees they charge in the calculation that determines APR, so customers who use that figure to shop rather than an itemized breakdown of rates, points and fees may end up comparing apples to oranges.

2. How many discount and origination points will I pay?Lenders may charge prepaid mortgage interest points to lower your interest rate or other points that have no benefit to you at all. Find out how many you’ll be expected to pay and which kind of points they will be.

3. What are the closing costs?Mortgages come with fees for various services provided by lenders and other third parties involved in the transaction. You want to know what those fees will be as early as possible. Lenders are required to provide a written good faith estimate (GFE) of closing costs within three days of receiving a loan application. (These fees should be written out individually and compiled as a sum).

4. When can I lock the interest rate and what will it cost me to do so?Your interest rate might fluctuate between the time you apply and closing. To prevent it from going up, you may want to lock the rate, and even points, for a specified period. Ask your lender if lock fees apply. Also, find out what the experts are expecting rates to do, read Rate Trend Index.

5. Is there a prepayment penalty on this loan?There may be a prepayment penalty on your loan. Some penalties are 1 percent of the loan amount, others are equal to six months’ interest, some apply only when you refinance or reduce the principal balance by more than 20 percent, and some kick in if you sell your home. Find out the duration of any penalty period and how the penalty is calculated. Some lenders offer lower interest rates to buyers who accept prepayment penalties.

6. What is the minimum down payment required for this loan?The rate and terms of your loan will be based on a down payment figure, typically 3 to 20 percent of the buy price. If you can put more money down, you may be able to lower your rate and improve your terms; if you come up short, you may be required to get mortgage insurance.

7. What are the qualifying guidelines for this loan?These requirements relate to your income, employment, assets, liabilities and credit history. First-time home buyer programs, VA loans and other government-sponsored mortgage programs typically offer easier qualifying guidelines than conventional loans.

8. What documents will I have to provide?Most lenders will require proof of income and assets before approving your loan, and may require other documents as well. Buyers with excellent credit may qualify for a no-documentation or “no-doc” loan, but they can expect to pay a hefty down payment and higher interest rate.

9. How long will it take to process my loan application?The answer will depend on a number of variables. When the loan business is brisk, underwriters get backed up, verification takes longer, appraisals move slower and other bottlenecks develop along the loan pipeline. Lenders may say two weeks, but 45 to 60 days is probably more realistic in most cases. You’ll need their best guess to determine how long to lock in your loan.

10. What might delay approval of my loan?If you provide the lender with complete, accurate information, the loan process should run smoothly. If the underwriter discovers credit problems, however, there could be delays. Make sure you notify your lender if you change jobs, increase or decrease your salary, incur additional debt or change marital status between the time you submit an application and the time the loan is funded.

Here are some additional questions to ask:· What different types of adjustable-rate loans (ARM’s) and fixed rate loans do you offer?· What are the Gift Fund limits on each type of loan? How much money may my relative or friends give me to help out with the down payment.· If I’ve received gift funds, is there a requirement for “seasoning” the funds? (“Seasoning” is typically leaving funds in an account for a minimum of two months).· How can I avoid paying Private Mortgage Insurance (PMI)? And, which loans require it?· What are the additional requirements for an FHA or VA loan, if I qualify for these?· How many months of reserves (funds to cover property taxes or hazard insurance) are required?

Please feel free to call us at 425-970-3697 or email us at [email protected] with any further questions or concerns.

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Since 2003, Team Reba has been a trusted name in the real estate industry, offering comprehensive services in the Greater Seattle area. We excel in a range of real estate services, such as buyer’s representation, listing services, relocation assistance, and luxury home marketing. Our core mission remains unchanged: “Helping YOU make an educated move!”

Ten Questions to ask your lender when buying or refinancing a property

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Ten Questions to ask your lender when buying or refinancing a property

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