In many respects the game of shopping for a mortgage to buy a house, or refinancing your mortgage hasn’t changed all that much since the real estate and mortgage crisis of 2007.
The process is still something like – call a few mortgage loan officers, or talk to your real estate agent and have them refer you to their lenders – get a few quotes and go with the person you “like” the best.
The very basic purchase mortgage programs are relatively the same – 3.5% down for an FHA loan, 5% down for a conventional mortgage, 0% down for VA loans and UDSA loans. Although you must have better credit and be able to prove income to qualify in today’s lending environment. However, in the end – it may just boil down to rate and who’s on the other end of the lender’s phone.
Refinancing programs and the process are a little more complicated with so many homeowners upside down on their mortgages – but again – if you have good credit, income and some equity then refinancing boils down to rate and who do you like.
While it may just boil down to rate and who do you like here are a few mortgage questions to keep in mind when shopping for a mortgage – the asking of these questions and the answers may just keep everyone honest.
- What is the Interest Rate – Are there points?
The catch 22 of any mortgage program is getting the lowest interest rate without paying points and getting the right mortgage program. Technically speaking, the lowest rates of all mortgage programs typically come from adjustable rate programs with fixed rates being second in line. You can also get a lower rate by paying discount points. So, when you are shopping for the lowest rate – make sure you are getting the program you want for the price you are willing to pay.
- Can I lock in the rate?
Some lenders will not let you lock in an interest rate until your loan has been at least pre approved and appraised on a refinance and when you have a signed sales agreement on a home with your loan having been pre approved. Limiting when you can lock reducing the bank’s risk on the money that they have to lend. The typical lock periods are 30-60 days and some even include a float down option. Once your lock has expired, in most cases you’ll be subject to relocking at the current rates. So if rates went up and your lock expires, you may be stuck with a higher rate.
- How much are my closing costs?
This is a very important question to ask. The way this gets answered is simple – your lender/loan officer gives you a good faith estimate. The GFE has a detailed list of fees you will pay as well as escrow charges, taxes due etc. A good rule of thumb to go by is that you should try to get at least 3 good faith estimates to compare. You should get them each from different loan officers. Also, make sure you are comparing GFE’s for the same loan amounts as well as loan programs. There will be differences if you don’t which can make comparison shopping very difficult.
- What’s my loan program and what’s the required down payment?
Obviously, this question is only relevant on a purchase mortgage, but you need to know that you’re being quoted a fixed rate that only requires 3.5% versus an ARM requiring 20%. While extreme – not asking can bite you later when it comes time to putting your required cash together. You should also ask about receiving gift funds or down payment grants and the process for doing either of these if they apply to you.
- What is the loan process, what is expected of me, and how long will it take?
This question varies from lender to lender, but you need to know what each will expect from you.
With these 5 mortgage questions in mind when shopping for a mortgage, you can still go with the lowest rate, or who you like, but at the very least you have had the opportunity to pick the loan program right for you at the price that’s appropriate for you to pay.