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For first-time home buyers, a crucial step other than searching for and deciding on their dream home is finalizing on the right mortgage lender. This decision can have massive long-term ramifications on personal finances, and there are plenty of factors to consider before taking the final call.
In this article, we list down 4 essential questions that you need to ask before choosing a mortgage lender.
- What Types of Loans Do You Offer?
Mortgage options are far from straightforward, and for first-time buyers, it is almost akin to walking into a maze.
Each mortgage type comes with its unique share of nuances, benefits, and pitfalls. Your choice must be made considering your long-term financial goals and prevailing market conditions, alongside deeper insights into mortgage pricing, among other things.
Here’s a brief take on the different options available, and how they each differ from one another.
- Fixed-Rate Mortgages: Your interest rate stays the same for the entire loan term.
- Adjustable-Rate Mortgages (ARMs): Your interest rate can change at specified times.
- FHA Loans: Insured by the Federal Housing Administration, great for first-time buyers.**
- VA Loans: For veterans, service members, and their families, backed by the Department of Veterans Affairs.**
- Jumbo Loans: For loan amounts higher than conforming loan limits.
Each loan type has its pros and cons. A lender that offers a variety of loans can help you find one that fits your financial situation and home-buying goals.
- What Are Your Interest Rates & APRs?
Most people don’t give the APR the same amount of importance that they do for the interest rate. We argue that the APR is far more important, considering that it includes the interest rate, alongside other fees associated with the loan, giving you a complete picture of your borrowing and home ownership costs.
Comparing APRs from different lenders can help you spot hidden fees and choose the best overall deal. By only talking about interest rates and leaving APRs in the fine print, mortgage lenders may be out to deceive you, so it’s best to be aware.
- What Are The Closing Costs?
Closing costs can sneak up on you if you’re not prepared. These fees cover everything from appraisals to title insurance and can add up to 2-5% of the home’s purchase price. Key things to ask include,
- Breakdown of Fees: Get a detailed list of what you’re paying for.
- Can Fees Be Rolled Into the Loan? Some lenders allow this, which can ease upfront costs.
- Any Discounts or Waivers? Some lenders might offer discounts if you meet certain conditions.
Being clear on closing costs will help you budget more accurately and avoid unpleasant surprises when you’re ready to sign on the dotted line.
- How Do You Handle Rate Locks?
Interest rates can fluctuate from the time you apply for a loan to when you close on your house. A rate lock guarantees your interest rate for a certain period, protecting you from rate increases. Key points to consider:
- Duration of The Rate Lock: Common periods are 30, 45, or 60 days.
- Cost of The Rate Lock: Some lenders charge a fee.
- Extension Options: Can you extend the lock if necessary, and at what cost?
Understanding how rate locks work with your lender can save you from last-minute financial stress if rates start to rise.
Final Thoughts
Choosing a mortgage lender isn’t just about finding the lowest interest rate. It’s about understanding the full scope of what each lender offers and how it fits your needs.
By asking these four essential questions, you’ll be better equipped to make an informed decision and move forward confidently.
Homeownership is a huge milestone, and the right mortgage lender can make the process smoother and more enjoyable. Take the time to do your homework, and ask the right questions, and you’ll be one step closer to unlocking the door to your new home.
**Disclaimer: Owning is a private corporation organized under the laws of the State of Delaware. It has no affiliation with the US Department of Housing and Urban Development, the US Department of Veterans Affairs, the Nevada Department of Veterans Services, the US Department of Agriculture, or any other government agency. No compensation can be received for advising or assisting another person with a matter relating to veterans’ benefits except as authorized under Title 38 of the United States Code.