FINDING YOUR IDEAL LENDER
Having your documentation in hand and asking the right questions are key to successfully negotiating the process of finding the best lender for your circumstance. Let’s start with the basic documents a lender will need from you. These include but are not exclusive to: tax returns for the last 3 years including W-2s or 1099s, most recent pay stub, bank and other asset statements and a photo ID.
Now that you have gathered your personal information you need to figure out what your options are. There are three general categories of lenders: Banks, Mortgage Brokers, and Credit Unions. Each of these institutions will likely have online presence but, nothing beats sitting across the desk from a real human being who recognizes you are a person and not just a file. Most lenders will have loans fitting most typical circumstances with some having more specialized options.
At this point you will likely want to consider what type of lender and it may be in your best interest to interview one or more candidates from each of the categories mentioned above. The most critical aspect of this step is to as the right questions. Below are some questions you may want to consider asking:
What types of loans do you offer?
What is your interest rate and APR?
(Note: for a more in-depth explanation of loan types, interest rate and APR reference our article FINDING YOUR PERFECT MORTGAGE in our Blog at www.DreamTeamMax.com)
Do you offer loan rate locks? – Loan interest rates potentially change every day and sometimes hourly. If loan rates are on the rise many lenders may offer the opportunity for you to lock a rate for a short period of time while your home purchase proceeds to close. This interest rate lock may be complimentary or there may be a fee required to lock the rate. Ask your lender how long their loan processing typically takes and ask them to lock the loan until they are able to close the loan on a complimentary basis. These “lock” periods are typically 60 days or less so you will want to have a property under contract and have moved through the initial phases of the home purchase process before you consider paying a fee for a short-term lock.
What will my payment be?
The lender will be able to calculate the monthly payment based on the loan type, term, interest rate and down payment. Be sure to include taxes and home owner insurance into that monthly payment. Some lenders may require or you may desire an escrow account to be established for the purpose of paying your yearly real estate taxes and homeowner insurance. Either way, you will need to set money aside in an account via your loan payment (escrow) or in a savings account in preparation of these yearly expenses.
What do I need for a down payment?
Interest rates and monthly payments will vary considerably based on your down payment. This also will factor into whether you will pay private mortgage insurance (PMI). Typically, if you have a down payment of 20% or more, lenders will not charge PMI. If you are required to pay PMI be sure to ask your lender if once you achieve 20% equity in the home if PMI will be waived.
What fees and costs will I pay?
You are entitled to a good faith estimate from your lender. Some of the largest expenses involved in the purchase of a home are closing costs. Closing costs are fees that are paid at the end of the transaction, once the home is ready to be transferred from one owner to another. These costs can be paid by the seller, the buyer, or shared by both.
Typical fees paid for by the buyer at closing are an appraisal, credit report, and title policy. There may be additional fees which will vary lender to lender. It’s important to ask your lender for an estimate of closing costs up front, as many of the fees associated with closing the transaction can be negotiated.
Although the final bill might differ from the estimate the lender provided, there are limitations to how much fees can change. If you find any major discrepancies, be sure to discuss them with your lender.
Have I found my ideal lender?
The bottom line is you are entering into a long-term contract amounting to a large percentage of your personal wealth with this entity. Ask the questions and then ask more!