Questions to Ask a Lender

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Real Estate

HOW MUCH MONEY CAN I BORROW TO BUY A HOME?

When determining how much you can borrow, lenders may consider your income level compared with debt, your employment status, and your credit history. Talk to a lender about getting prequalified for a mortgage before you start shopping for your new home. This can make the whole experience go more smoothly.

Military veterans and first-time homebuyers may be eligible for special government-sponsored mortgage programs. Ask your lender what you might qualify for.

HOW MUCH MONEY DO I NEED TO PUT DOWN?

To get the best rate and terms for your loan, try to put down at least 20 percent of the purchase price. Although a lower down payment won’t necessarily disqualify you, there is a chance that a monthly private mortgage insurance (PMI) payment will be added if your down payment is less than 20 percent. Your down payment will affect other variables as well, such as your interest rate, terms, and monthly payments. Ask your lender for more information about the minimum down payment required for your loan and if you might be eligible for any down payment or cost-saving assistance programs, and decide what’s right for you. The Affordable Loan Solution® mortgage from Bank of America can help eligible borrowers with modest incomes secure a home loan with a down payment as low as 3 percent and no PMI required.

WHAT'S THE INTEREST RATE?

Right off the bat, you should ask your lender for a direct interest rate quote, as well as the corresponding annual percentage rate (APR) for the loan. Since the APR accounts for fees and other loan-related charges, it gives you an apples-to-comparison among lenders. Don’t be afraid to shop around until you find one you’re comfortable with.

WHAT'S THE DIFFERENCE BETWEEN A FIXED RATE AND AN ADJUSTABLE RATE MORTGAGE

A fixed rate mortgage keeps the same interest rate for the life of the loan, typically a 15- or 30-year term. This keeps your monthly payment for principal and interest steady and predictable over time. Adjustable-rate mortgages, or ARMs, have interest rates that change based on the market, so your payment will go up and down. Most ARMs are based on a 30-year term and typically start with an initial fixed interest rate for a specific period of time, usually 5, 7 or 10 years. It’s important to compare these two types of mortgages to find what’s best for your situation.

HOW MANY POINTS DOES THE RATE INCLUDE?

A point is a fee paid to the lender at closing in exchange for a reduced interest rate. (1 point = 1% of your total mortgage amount.) Be sure to ask your lender how many points are included in the quoted interest rate and what the benefits might be to buying more or fewer points.

WHEN CAN I LOCK IN THE INTEREST RATE?

Interest rates always fluctuate. Sometimes, locking in a low rate can really pay off. Ask your lender when you can lock a particular rate and for how long. Keep in mind, lenders will usually offer lower interest rates for shorter-term locks and higher interest rates for longer-term locks.

WHAT ARE MY ESTIMATED CLOSING COSTS?

Remember to factor in the various fees associated with buying a home—particularly closing costs. Closing costs include loan origination fees, appraisal fees and attorney fees (if any), to name a few. Your lender should provide you with a Loan Estimate showing the approximate costs of your loan so you can budget accordingly.

ARE THERE OTHER CLOSING COSTS I SHOULD KNOW ABOUT?

The more information you can collect up front, the more prepared you’ll be should you run into any unexpected expenses along the way. To help you understand the various fees you’ll need to cover, your lender should give you a Closing Disclosure detailing all the costs associated with your loan. It’s a good idea to compare the Closing Disclosure to the Loan Estimate.

CAN YOU ESTIMATE WHEN THE CLOSING WILL BE?

A lot of factors help determine when your exact closing date will be—many of which are completely out of your control. Ask your lender for an estimate of when you might expect to close. That way you’ll at least have a rough idea of the timetable you’re working with.

IS THERE ANYTHING THAT COULD DELAY MY CLOSING?

Yes, buying a home is a complex process with many stages and requirements. While delays are normal, the best way to avoid them is to stay in touch with your lender and provide the most up-to-date documentation as quickly as you can.  Pre-qualification is neither pre-approval nor a commitment to lend; you must submit additional information for review and approval.

 

Information provided by Better Money Habits in partnership with Bank of America