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Taking out a mortgage is a constantly evolving process. Given enough time, loan programs can change, mortgage rates can shift, and new technologies can emerge to help process and manage your loan. Whether you’re planning on buying a home or refinancing, here are some questions to ask a mortgage lender to help identify the best partner for you.
1. Do you have e-closing options?
Mortgage e-closings are becoming an industry standard because of their convenience, speed, and accuracy. As with traditional closings, they’re a process where a homebuyer and seller review and sign documents to finalize a home purchase, but some or all signing is done electronically. One of their top benefits is that they ensure documents aren’t submitted with a missing signature. That could delay a mortgage from funding, among other issues.
Three common types of e-closings include:
- In-person electronic notarization (IPEN) – A face-to-face meeting where all documents are signed digitally.
- Hybrid e-closing – A face-to-face meeting where certain documents are signed with pen and paper and others electronically.
- Remote online notarization – A video meeting where parties sign digitally. This option may or may not be available in your state.
2. What is the difference between Pre-Approval and Verified Approval?
The terms “Pre-Approval” and “Verified Approval” are often used interchangeably but can have very different meanings. Pre-Approval is an estimate of how much you can afford based on your monthly income and assets along with debts from your credit report. It’s a great tool to estimate how much you can afford while house shopping, but the loan amount isn’t guaranteed.
A Verified Approval lays out a more precise amount that you can be approved for. Your information is reviewed by an underwriter making the estimate stronger than a Pre-Approval. This can give you a leg up when you put an offer on a home because sellers will know you’re qualified for enough financing. When getting a Verified Approval, your lender requires you to submit documents like bank statements, W-2s, and pay stubs as well as undergo a credit check to know exactly what your budget is.
3. Can you estimate a closing date?
Knowing an estimate of when you will close is beneficial, especially once you’re negotiating with a seller. That’s because closing dates may make or break a deal in a competitive market, and there are many steps involved in the closing process that can affect a date. These include home inspections and appraisals. There are also factors that your lender is responsible for and are usually out of your control, so investigate how they can protect your or your seller’s timeline.
4. Do you have in-house underwriters?
One of the reasons Mr. Cooper can offer our closing guarantee is due to in-house underwriters. Mortgage underwriters are responsible for reviewing applications, making conditions for approval, or denying applications. When underwriting is done in-house, it can significantly decrease the amount of time it takes for your loan to be processed. If underwriting is not done in-house, ask lenders how long their underwriting process generally takes.
5. Do you offer real estate assistance?
The act of buying or selling a home can be confusing and expensive. Asking your mortgage lender this question may help you make connections with great agents or save money on fees and commissions.
6. What types of loans are available, and which might be a good fit for me?
When you first approach a lender, ask what types of loans are available to you. A variety of options are available depending on your financial needs and goals. These may include low- or no- down payment mortgages or mortgages with no closing costs that need to be paid upfront.
7. What will my interest rate and APR be on my loan?
Many people focus on interest rates but it is also important to understand a mortgage’s annual percentage rate (APR). APR is a yearly percentage rate showing the total cost of financing a loan. It is often higher than a mortgage’s advertised rate because it includes other costs and fees that are incurred when a loan is created. In addition to your interest rate, these may include expenses such as:
- Closing costs
- Origination fees
- Mortgage insurance (if your loan requires it)
If the final APR is higher than you’d like to pay, you can also ask your lender if you can pay for discount points to lower your rate. One discount point can generally reduce a rate by 0.25% and costs 1% of the loan amount. On a $300,000 loan that would equal $3,000. If you plan on paying your loan over the long-term, the points could also add up to thousands of dollars in interest savings. A mortgage calculator can help you estimate how much you could save over time.
8. What costs will be associated with my mortgage?
Depending on how your home loan is structured, there are a range of 3rd party costs that may come into play, such as the closing costs and mortgage insurance described above. Closing costs can encompass a range of fees such as:
- Real estate appraisals
- Credit check processing fees
- Title fees
- Escrow fees
- Recording fees
- Taxes
- Home inspection fees
Depending on your lender and loan type, you may be able to wrap added costs and fees into your loan to avoid paying them upfront. Some loans may have reduced costs built into them. Others may have a trade-off such as a higher interest rate or longer loan term to reduce your upfront costs.
9. Is there a penalty for early repayment?
Paying a mortgage off early can reduce costs in the long run because there will be less interest to pay. But you should always consult your mortgage lender to make sure that there is no prepayment penalty for paying off your mortgage early, and make sure to know what options are available without prepayment penalties.
Keeping up with changing markets and circumstances can be a challenge but knowing the right questions to ask a mortgage lender can help you to be better prepared.
