Lending Q & A
One of the very first steps in purchasing a new home is establishing the team members that are going to help get you there. Your Realtor is critical in helping you navigate the home buying process; equally as important is the relationship you build with your lender. Your lender and Realtor act as a system of checks and balances. One is focused on stretching your budget to encompass as much of your wish list as possible - while the other works strategically to ensure your home purchase sets you up for long term financial health.
A Realtor can work with any lender, however it isn’t uncommon for Realtors to have an established relationship with a lender partner. In a lender, I’m looking for someone who is responsive, who has a proven track record of getting the job done, who wants to strategize to drive results for the common interest of our client and who I can deliver clients to knowing they will be in the best hands possible.
I sat down with my lender partner Matt Kremers of Envision Capital to pose some of the most frequently asked lending questions I get from my clients.
When interviewing a lender, what are good questions to ask?
What is your process?
How long have you worked at your company?
How long have you been a loan originator?
Do you have one set of products or can you look at different institutions pricing?
Will you be the only point of contact during the process or will I be handed off after application/approval?
Shouldn’t I just get a mortgage from the bank that holds my personal accounts?
Although this may seem convenient, the more important part would be to work with a loan officer you trust and feel can guide you through the process appropriately along with offering competitive products. This isn’t always the case when you are just assigned to someone. It’s always good to verify their credentials or get a referral from a source you trust and who has worked with the lender/loan officer.
What are the fees I should expect to incur when obtaining a mortgage?
The general loan costs and other costs are broken into the following buckets on a loan estimate:
Origination charges (origination fees, discount points, underwriting fees, etc.)
Services you can’t shop for (appraisal, credit report fee, flood certification, etc)
Services you can shop for (closing fee, title exam, title service, lenders and owners coverage for title insurance)
Taxes and other government fees (recording and transfer taxes)
Prepaids (first years home owners insurance premium, prepaid interest, etc)
Initial escrow payment at closing (sets up escrow account with an initial deposit of property taxes and homeowners insurance)
Other (real estate admin fees, initial start up costs for association, etc.)
Do fees vary from one lender to the next? If so, how much and what is the best way to compare them?
Yes, the easiest way to compare options is to look at any origination fees being charged and the interest rate received as a result. Interest rates will range based off origination so if you are getting multiple quotes, it’s best to do them all on the same day (pricing changes throughout the day) and with the same interest rate so you can then simply compare the fees being charged as a result. It is also important to compare the mortgage insurance you are being charged (if applicable) as this will vary based on lender and program.
What does it mean to get pre-approved for a home loan?
This means that you have completed an application with a loan officer, they have pulled credit, they have reviewed any pertinent asset and income documentation and given you an amount that you are approved up to along with providing loan options. This is important to have completed prior to looking at homes so that you are ready to make a competitive offer accompanied by a pre-approval letter from you lender.
What paperwork will I need to provide to get a pre approval?
Here is a mortgage checklist we provide.
What additional paperwork will I need to provide in order to get a mortgage?
Above and beyond the documentation from your pre approval, we will need to source any large deposits in your bank account. Additionally, if you own multiple properties, be prepared to provide mortgage statements along with insurance and tax information for each. If you are self-employed, we will need tax returns for any company you own more than 25% of. Typically at application, the loan officer will give you a list of documentation above and beyond the mortgage checklist so that you have time to gather these items.
What affect does my credit score have on obtaining a mortgage?
This will depend on the type of mortgage product that best fits your needs. Conventional loans will tier both interest rates and monthly mortgage insurance amounts (if applicable) based on your credit score. These tiers are based off 20 point increments starting at 620 all the way up to 760. For example, 620-640 would be the first tier and so on. The higher the score, the better rates you will receive for both interest and mortgage insurance. If you are doing government financing (FHA, USDA, VA) your credit will not affect terms as much.
Does every lender have the same interest rate or do they vary between lenders?
No, not every lender has the same interest rate. The interest rate they offer you will vary based on your credit score, down-payment and the origination fees they charge.
How soon can I lock my interest rate and how long is it good for?
Typically interest rate locks are good for 30, 60 or 90 days but you can pay additional costs to buy an extended rate lock for up to one year. Rates are locked once a purchase agreement has reached final acceptance.
How do I choose what type of loan I should get?
This is where your trust in you loan officer is important. It is their job to fit you with the product that best fits your needs. If they have a wide variety of offerings, this will increase the chance of you getting the best deal. The main considerations should be picking one that fits your timeline on owning the home, monthly payment goals, cash flow plans (even looking into possible future costs) and fits your tax benefits appropriately.
What if I need additional funds to renovate the home I’m purchasing?
There are many options available to fund renovation into the purchase of your home - some with as low as 3.5-5% down payment on total costs of purchase and renovation. Talk with your lender about the options!
How much should I spend on a home?
The average in the US is a payment that makes up roughly 30% of monthly household income, however the number will depend greatly on down-payment and residual income after expenses. First-time home buyers can start by looking at what they spend or have spent in rent over the course of the past year. Whether or not they’ve been able to save with that payment or not is an important consideration that should be examined closely.
How much of a down payment will I need?
Typically 3% or more but there are some options for zero down through various grants and government programs.
What other lending related questions do you have? Feel free to reach out to me at email@example.com or by phone at (612) 723-7636. In addition, you can read more about Matt and his experience as well as initiating the pre approval process over on his website. Ready to start the process of buying a new home? Check out this post right here.
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