When it's time to buy a home, you will likely be eager to lock in with a mortgage lender. But before you make a commitment, it's essential that you find the right lender for you. There can be big differences between prospective lenders, and not all of them great: from unexpected fees to unfavorable terms and the types of loans offered. And with the number of online options available these days, it's definitely a world of borrower beware. Settle on the wrong lender or loan, and you could feel financially trapped in a bad situation; find the right lender and you can feel confident you’ll be treated fairly.
So how do you find the right mortgage lender for your home loan needs? It starts by asking the right questions of prospective lenders. Here are five questions that can help you determine whether a lender is right for you.
Not all down payment requirements are created equal. While it's standard to require 20% down payment, you may have some wiggle room if your credit and income are solid. In addition, some types of loans require far less than that — but be sure to know the good and bad of those options. For example, if you don’t have 20% to put down on your mortgage loan, you’ll likely be expected to carry private mortgage insurance, which can up your closing obligation and your payments until you get there.
Your loan will have an APR, or annual percentage rate, which your lender determines through a complicated set of factors, including their fees. You'll want to know and understand whether your interest rate is adjustable, along with the margin, highest rate and index.
Many fees factor into loans, so it's vital for you to understand what they are and how much they will total. An estimate of all fees that are included, such as lender fees and fees from third--party vendors, should be provided to you by law when you apply for the loan. This is known as the “loan estimate.” You can request this information up front — before committing to a loan — so you can make a fully informed decision.
If your financial situation allows, you may be interested in paying your loan off early. But be sure to find out whether your lender has a prepayment penalty. While this is disallowed in some places, you'll want to be in the know, as this could lead to an unexpected fee from "unearned interest." Ask about prepayment terms, and get clarification if penalties would be in place if you refinance your loan later on through your same mortgage lender.
You may not know it, but having an on-time closing is important, and much of whether or not that happens rests on the shoulders of your lending institution. A delay in closing can lead to more fees and expenses for you, particularly if you've locked in on an interest rate and it expires before closing. In addition, just imagine the mounting costs of having to reschedule moving from your current housing. It can add up quickly. Find out in detail how your lender handles these issues.
Before you commit to one lender and a particular loan, be sure to ask your mortgage lender these questions. Of course, add in your own questions so you have a full understanding of the all-important obligation you are undertaking with this home loan. It may seem difficult or time-consuming, but in the end you'll have a better understanding of the financial road ahead, throughout the life of your loan.