When shopping for a mortgage loan, ask each bank to detail its requirements, the interest rate on your loan, the monthly payment amount, your budget for buying a home, and the closing costs.
Be prepared to answer questions regarding your income, debts, assets, and the amount of the down payment. You will need to support your answers with documentation.
Banks are not allowed to ask questions regarding sexual orientation, medical history, disabilities, political or religious beliefs, and family planning.
When applying for a mortgage loan, the bank assesses the risks involved to determine whether to lend you the money. In addition to the questions they will ask you, you will also want to ask some of your own: about application requirements, the interest rate on the loan, the total monthly amount you can expect, and the closing timeline.
Here, we will cover some questions you should ask – as well as the questions the bank will ask you – when applying for a mortgage loan.
Questions to Ask Your Mortgage Lender
What types of mortgage loans do you offer?
Mortgage loans are not one-size-fits-all. There are many different types of mortgage loans aimed at different applicants. Here are some of the most common types:
- Conventional conforming loans: These are the most common loans. “Conforming” means they fall within the requirements of the Federal Housing Finance Agency (FHFA). “Conventional” means they are established and backed by private lenders – not loans guaranteed or insured by the government.
- Jumbo loans: These are conventional loans for more expensive properties that exceed the loan limits set by the FHFA.
- Federal Housing Administration (FHA) loans: Loans insured by the Federal Housing Administration (FHA) that require lower credit scores and down payment requirements than conventional mortgage loans.
- VA loans: Loans for qualified active-duty service members, veterans, and surviving spouses guaranteed by the Department of Veterans Affairs (VA). It’s noteworthy that these loans do not require a down payment.
- USDA loans: Loans backed by the U.S. Department of Agriculture (USDA) for those with qualifying income who wish to purchase in specific rural areas. Like VA loans, they do not require any down payment.
- Non-qualified loans: These loans (non-QM loans) do not meet certain criteria set forth by the Consumer Financial Protection Bureau (CFPB). These loans target borrowers who may have difficulty obtaining a conventional loan under standard criteria.
What type of mortgage loan do you recommend for me?
After learning about the types of loans the bank offers, ask them which type they recommend for you. In addition to the types of loans mentioned above, ask about fixed-rate loans versus variable-rate loans.
What is the minimum down payment requirement?
Although you may think you need a 20 percent down payment, the truth is that many mortgage loans require much less than that. Ask the bank about the down payment requirements, and if you are a first-time homebuyer, inquire about any special programs aimed at providing assistance.
What interest rate am I qualified for?
Banks are required to disclose the annual percentage rate (APR), along with the interest rate, for the loan issued. When obtaining a quote, make sure to understand the difference between the annual percentage rate and the interest rate, and what fees affect the annual percentage rate.
What will my monthly payments be?
If you are looking for rates but are not ready to apply for a mortgage loan at the moment, ask the bank to calculate your monthly loan payment based on their offer. (When you submit the actual application, you will receive a loan estimate that outlines these details.) This can help you understand the budget for buying a home.
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Is there a hard credit check?
It’s important to know whether the bank will conduct a hard credit check during the pre-approval process. Most banks do this. A hard credit check will slightly affect your credit score, which can impact your loan options and the interest rate offered, especially if you initially have a low credit score.
Do you offer pre-qualification and pre-approval?
Pre-qualification is best for borrowers who are getting ready to search for homes; it helps you understand what you may be qualified for if you apply. Many banks offer pre-qualification without a credit check, but be sure to clarify before agreeing to it.
When you are ready to start seriously looking for a home, you’ll need to get pre-approved so you can make credible offers on homes. While pre-approval is not a commitment to lend, it indicates that you will get the loan you need when the time comes. To get pre-approved, you will need to provide financial documents and undergo a credit check.
Is mortgage insurance required?
For conventional loans, you will need to pay private mortgage insurance (PMI) if you put down less than 20 percent. This insurance is an additional cost that is typically added to your monthly payments.
For FHA loans, you will pay mortgage insurance in the form of two premiums: an upfront premium paid at closing and an annual premium paid monthly for 11 years (if you put down 10 percent or more) or for the life of the loan (if you put down less than 10 percent).
Note: Some banks offer “no mortgage insurance loans,” which eliminate this fee in exchange for a higher interest rate. Depending on how long you plan to stay in the home, it may or may not make sense to accept a higher interest rate.
What are the closing costs?
Closing costs include lender fees and third-party fees, such as property appraisal and title services. Ask the bank about origination fees, credit check fees, and other costs. This will help you prepare financially and avoid surprises at closing.
Do you offer a lock on the mortgage interest rate?
Some banks offer you the opportunity to lock in the mortgage interest rate for a period of time. This option may come with fees. Some banks offer an early lock as part of the pre-approval. With other banks, it is available once your offer on a home is accepted.
Questions the mortgage bank will ask you
Expect the mortgage bank to ask you about everything from the type of loan you need – are you buying a home or refinancing? – to how quickly you want to close and whether you are applying for the loan with a co-borrower. Key questions include:
What type of property do you wish to finance?
The bank needs to know the type of property you hope to finance and what you intend to use the home for. This is because there are different rates and requirements for different types of properties. For example, you may need a larger down payment to qualify for a loan on an investment property compared to a primary residence.
Required documents:
Purchase agreement and sales
What is your employment status and income?
If you have been steadily employed with the same employer or in the same industry for two years or more, answering this question may be easier. However, if you are self-employed or work on a contract basis, you will need to provide additional documentation, such as profit and loss statements from your business or 1099 forms if you are a freelancer.
Required documents:
Pay stubs from the last 30 days
Tax returns
Taxes (including W-2 and/or 1099) from the past two years
Employer contact information
Business records if you are self-employed
Documentation of other income sources such as bonuses and/or child support and/or spousal support and/or disability or VA benefits or retirement or social security
What recurring debts do you have?
Generally, lenders prefer a debt-to-income (DTI) ratio not to exceed 36 percent. This means that your regular monthly obligations – including car loans, credit card debt, student loans, and mortgage loans (if you have one) – should account for less than 36 percent of your pre-tax income.
Note: If you are applying for a conventional loan and have 10 payments or fewer remaining on one of your debts, you may not need to provide documentation regarding that. Your loan officer can help clarify what you need to provide in that case.
Required Documents:
Credit card statements from the past 60 days
Student loan statements from the past 60 days
Car loan statements from the past 60 days
Personal loan statements from the past 60 days
Do you have savings or other assets?
Savings (excluding down payment) or investment assets can help strengthen your mortgage application. While it is likely that you won’t be required to have a specific amount saved, the bank still needs to see a complete financial picture of your assets.
Required Documents:
Bank statements from the past 60 days, including checking accounts, savings accounts, and money market accounts
Retirement account statements and pension plans
Brokerage account statements
Documents regarding other properties you own, if available
How much do you intend to pay as a down payment?
Generally, the larger your down payment, the lower your interest rate.
Keep in mind: If you plan to use a down payment gift from a family member or friend, the bank will likely require you to provide a gift letter explaining the source of the funds.
Similarly, if you are looking for down payment assistance, you may need to attend a first-time homebuyer class. Ask the bank if you are eligible for down payment assistance and what the requirements are.
Required Documents:
Bank and brokerage statements
Gift letter for the down payment, if required
Documentation related to down payment assistance or grants, if required
Questions Mortgage Banks Should Not Ask
While the above list may make it seem like mortgage banks can ask whatever questions they want, there are some legal boundaries, according to Darren Q. English, Senior Community Development Loan Officer at Quontic, an online bank. These questions, according to English, are on his “do not ask” list (and any lender that complies with the law):
- Sexual orientation
- Disabilities
- Family planning (the bank can ask how many children you currently have and their ages, but cannot ask if you plan to have more children or discriminate based on family status)
- Political or religious beliefs
- Medical history
What to Expect After Applying for a Mortgage
Hurry up and wait. Pre-approval is relatively quick, but you won’t receive final approval until you actually have an accepted offer on a home and successfully pass through the appraisal and underwriting process. Typically, it takes about 30 to 45 days to close a mortgage loan, provided there are no issues.
Once you submit your loan application, avoid making large purchases or financing anything else until after closing. Major financial moves can affect your credit score, as well as increase your debt-to-income ratio, making you a riskier candidate. This may require a reset of the underwriting process or may mean your application is denied altogether.
Source:
https://www.aol.com/mortgage-questions-ask-expect-lender-202353519.html
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