Questions a First-Time Home Buyer Should Ask Their Lender

 The current market is definitely a hard one to navigate especially for first-time homebuyers. When purchasing a home for the first time there are so many overwhelming important decisions to make. Here are ten questions to ask your mortgage lender when purchasing a new home.

1. How do I know what type of mortgage is best for me?

There are many options available and finding the right one for you is very important. Your mortgage lender can help you with the process of choosing which mortgage will be best for you. A mortgage lender can help you list the pros and cons of each loan option.

2. What kinds of mortgages do you offer?

There are two major types of mortgages which are conventional loans and government-backed loans. A mortgage lender can help you with choosing the best loan for certain circumstances. They can determine what type of loan you are qualified for.

3. How much should my down payment be?

Usually, a 20% down payment is preferred, especially if you want to avoid PMI (private mortgage insurance). If this is not a figure you can afford, a lender can work with you on the amount you can put down. Depending on what you are approved for, it can be as small as a 3% down payment.

4. What will my interest rate be?

This is usually the first question most people ask a lender. Your interest rate will determine how much you can borrow. There are fixed-rate loans and adjusted rate loans. A 1% difference does not sound like a big difference but it can save you a lot over the lifespan of your loan.

5. Do you offer a mortgage rate lock?

This is important because a rate lock can keep you at a predictable loan cost. This is basically an agreement between you and your lender that the interest rate will not change until closing. If the rates start to rise, this does not matter, you will still get the lower rate.

6. Are there income requirements for buying a home?

There are lending requirements. A lender can help you and they do this case by case with what you will need. It can depend on your credit score and your source of income.

7. Do you offer pre-approval or prequalification?

First, you need to know the differences. Pre-approval means that a lender has verified your income, credit score and assets through documents such as your W-2s, tax returns and bank statements. Prequalification is based on what you tell your lender about your income, assets and credit. Then your loan amount is based on an estimate.

8. What will the costs of closing be?

Closing costs are the fees for processing your loan. These will be paid to the lender. The appraisal fees, origination fees, attorney fees, and title insurance are included in the closing cost. Your lender will provide you with an estimate of closing costs based on the type of loan you go with.

9. What should I do to prepare my financials when considering buying my first home?

There are many things you can do to get your finances in order. Make sure your credit is in good standing. If not, find ways to strengthen your credit. Always determine your budget before you start the process. Do your shopping and compare rates. Always get prequalified before you start looking for a home.

10. Are you doing a hard credit pull on me today?

This is important to ask because a hard credit pull can have an effect on your score. Do not let a lender do a hard credit check until you have agreed to work with that lender.

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The Ins and Outs of Mortgage Closing Costs

When buying a home there are many steps to the process. Once you have made an offer, you need to make sure you have money for a down payment, but that is not all the money you will need to bring to the table. Many home buyers do not take into account closing costs. This can come as an unpleasant surprise, but if you understand closing costs and have saved for them, the home-buying process will run much smoother.

First, you will need to understand what closing costs actually are. This is important to the buyer

because most of the closing costs are the buyer’s responsibility. Closing costs consist of the many fees for the services and expenses it takes to finalize a mortgage. Typically they are broken down into property-related fees, loan-related fees, mortgage insurance fees, property tax and homeowners insurance and title fees.

More importantly, is how much are closing costs? The amount usually runs between 2% and 5% of your loan amount. So if you have a $300,000 home purchase, your closing costs would run between $6,000 to $15,000. The best way to pay for them is out of pocket all at once. Some lenders do allow you to finance them by merging them into the loan, but you will end up paying more because of interest over the life of the mortgage. Some states, counties and cities offer low-interest rate loan programs and grants for first time home buyer’s closing costs.

Next, let’s look at the property-related fees that are included in the closing costs. These include the appraisal fee and the home inspection fee. When purchasing a home you will need to know how much the property is worth and what shape the property is in. A certified professional appraiser will be sent to the home to evaluate the home’s worth. This is very important when obtaining a mortgage. The lender needs to know if the property is worth the amount that you want to borrow. A lender wants to make sure they can recoup the value of the home if you default on your loan. Typically the appraisal fee will run between $300 to $400. A home inspection is required when getting a mortgage. A lender wants to make sure the home is structurally sound and in good enough shape to live in. A home inspection fee usually runs between $300 to $500.

Other fees included are loan-related fees. First, there is the application fee which covers the costs of processing your application. These costs usually include credit checks and administrative expenses. Assumption fees can also be included when there is an assumable mortgage that you are taking over from the seller. Many states will require the use of an attorney at the closing. This will add attorney

fees which will vary depending on the amount of work the attorney does for you. Pre-paid interest fees are also included. Lenders typically require you to pay the interest that accrues on the mortgage between the date of settlement and the first monthly payment due date. The biggest chunk of loan-related fees goes to the loan origination fee a.k.a the underwriting fee, administrative fee, or processing fee. This fee is the cost for the evaluating and preparing of your mortgage loan. This cost is about 0.5% of the loan amount. Just like a realtor, if you work with a mortgage broker, there will be a fee. A broker commission will usually be about 0.5% to 2.75% off the home’s purchase price.

Mortgage insurance fees are also included. These include mortgage insurance application fees, upfront mortgage insurance and FHA, VA and USDA fees. Mortgage insurance application fees are included if you make a downpayment of less than 20% of your mortgage. Upfront mortgage fees are there because many lenders require first-time borrowers to pay the first year mortgage insurance premium upfront. FHA, VA, and USDA fees will be tacked on if the Federal Housing Administration insures you, Department of Veterans Affairs, or the U.S. Department of Agriculture. For an FHA you will pay 1.75% of the loan amount, for the VA loan you will pay between 1.25% to 3.3% and the USDA will cost 1%.

Property taxes, annual fees and insurance will also need to be considered. Property taxes will cost about two months’ worth of city and county property taxes at closing. The homeowners association fees will also be required upfront as well as the homeowner’s insurance premium.

When purchasing a home one of the most important documents handled is the title. Title fees include the search fee (to make sure the title is clean and the seller really owns the property), the lender’s title insurance (this protects the lender in case there is an error in the title search) and owner’s title insurance (this protects the buyer if the title comes up with any problems).

So there will be no surprises before you go to closing, mortgage documents will be given to you prior to closing. The loan estimate and the closing disclosure are the two most important. The loan estimate details all the fees, interest rate and other closing costs for your loan and the closing disclosure confirms what was written in the loan estimate. These documents need to be read carefully before you go to closing.

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