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Buying a Home? Here are 7 Common Questions You Should Ask Your Lender
July 01, 2019 at 11:15am | Rima Rafeh
Are you looking for a lender to help you buy a home? The process of getting someone to finance your home can be a daunting one, but asking the right questions can go a long way in giving you peace of mind. It also enables you to prepare for the process and choose the right lender based on the answers they provide.
With this in mind, here are the top seven questions you should ask your lender before getting a loan to buy a home.
1. How Much Money Can I Borrow to Buy a Home?
One of the most common question in every potential homebuyer’s mind is, “How much can I borrow to buy a home?” You might have an idea of the value of the property you want to buy, but only your loan limit will determine whether you can afford it. Thus, when you first approach a lender, ask them how much you can borrow. Ideally, your monthly loan repayment should be less than or equal to 28% of your gross income. Also, approximately 4% of the income should cover the following:
Private mortgage insurance
In the end, around 32% of your gross income will go into housing. Thus, if you earn $8,000 gross income per month, don’t take a loan that requires you to repay more than $2,500 per month. Doing this will save you from finding yourself in financial fixes as you have other monthly expenditures as well.
2. What is the Best Loan for Me?
Once you’ve gotten a suitable loan amount, the next thing to ask about is the type of loan for your needs. There are various types of loans for home buyers, and these include:
Negative amortization loans
Ask the lender to explain the pros and cons of these types of loans and recommend the best option for you based on your income and other determining factors.
3. What Interest Rate Will You Charge?
Ask about the interest rate your lender will charge. If possible, look around for lenders with the best interest rates as this will result in significant annual savings. Also, ask whether the interest rate is fixed or adjustable. Fluctuations in interest rates can increase the total repayment amount. Ask the lender about locking your interest rate. This is where the lender locks your interest rate and saves you from paying more when rates fluctuate. Ask whether this is possible and for how long they will lock the loan.
4. Is There Anything I Can Do to Lower the Interest Rate?
Lowering the interest rate can save you a lot of money in the long run. Ask your lender if there are strategies you can take to reduce the rate. For example, improving your credit score by just a few points can earn you a lower interest rate. Ask your lender is future improvements in your credit score will impact the prevailing interest rate at the time.
5. How Much Down Payment Do I Need?
The standard down payment rate on loans is usually 20%. However, this doesn’t mean that your lender can’t go below that. If you don’t have much cash to put down, you may want to get a lender who allows you a lower rate. However, note that paying more upfront is desirable as it allows you to negotiate for better loan terms. It also reduces the loan repayment period and the amount you pay out each month.
6. What Documentation Do I Need?
Lack of proper documentation can delay closing and give you anxiety. Ask your lender about the documentation during loan processing and when buying the property. Some of the standard documents include the following:
Personal documentation (e.g., your ID)
Record of debts
Some documents are required in exceptional cases. For example, if you are divorced, you may be required to produce proof of child support payments. Ask about such in advance so you can prepare and avoid surprises.
7. What are the Estimated Closing and Total Costs?
Ask about the closing costs associated with buying a house. These include loan origination fees, attorney fees, and property appraisal costs. Getting an estimate of these costs allows you to estimate accordingly and avoid unexpected expenses that could delay closing. Also, ask the lender to provide an estimate of the total costs of buying the home. The more accurate the figure is, the more prepared you’ll be throughout the process.
Before asking these questions, you need to find the right lender to help you buy a home. If you’re unable to locate a suitable one to work with, don’t fret. We’re here to help. Contact the Rima team today for local lenders in your area!