How many times have you read an article about buying a home and it says every consumer should “shop” mortgage lenders? I know that I have written the advice to “shop multiple rates with multiple lenders” MANY A TIME.
And then, when I got a reader’s request for what questions to ask a mortgage lender, I realized that while we tell everyone to shop interest rates, most of us never follow up and tell consumers how to shop different lenders and the questions they should be asking while they do it.
This post aims to correct that.
The “Buying a Home Process” in 15 Seconds
Buying a home involves many steps, and getting a mortgage (or shopping rates for mortgage refinancing) is no exception. But before you commit to the long process, you’ll want to make sure you know what you’ve started, and who will be there with you.
Because mortgages are so complicated, you’ll be creating a relationship with whoever you decide to finance with. And relationships aren’t something you want to go into blindly.
At a glance, the steps required are:
Okay, so in order to get “pre-approved,” you first need to know what kind of mortgage to get.
Conventional loans are offered through the private sector instead of through the government. They can be fixed or adjustable-rate terms. Borrowers tend to choose these types of loans because interest rates are better. They also provide for several different down payment options.
With a conventional loan, you’ll need a credit score of at least 620, and a debt-to-income ratio of 43% or less.
Federal Housing Administration Loan (FHA)
FHA loans are insured by the Federal Housing Administration. These loans are typically for borrowers with low or moderate income.
You need a credit score of at least 580, and a down payment of 3.5%. These loans are fairly popular with first-time home buyers.
USDA loans require no down payment and are typically provided in rural areas. There is a population limit of 20,000 in the area you’re considering.
These loans will come with two fees: an upfront guarantee (1% of the loan amount) and an annual fee.
VA Loans are provided to veterans to make it easier for service members and their families to get a home. They’re typically provided with no requirement for a down payment, or mortgage insurance.
Most loans will come with a 15- or 30-year term.
9 questions to ask when shopping mortgage lenders
Along with learning about rates and features, you’ll want to ask each loan officer several questions before making your final decision. We’ve included a few, but feel free to ask anything else that comes to mind.
- What communication methods will we use during the different stages of the loan?
- What are the turnaround times for each stage of the process?
- Is this your most competitive rate?
- Are there any other ways I can lower the rate? (e.g. points)
- Will you let me know if there are any assistance programs for which I am qualified?
- When can I expect to close on the home?
- What fees are involved in the process?
- What down payment do you expect?
- What documents do you need from me during each step?
What’s the difference in lenders?
There are tons of options available, from local lenders to online choices. Carefully weigh each one before deciding which best suits your needs. Home lenders come from different backgrounds.
Correspondent lenders are usually local mortgage companies that rely on other lenders to finance your loan.
Credit unions offer low interest rates to shareholders. Many of them require membership restrictions before you’re allowed to finance through them. Even if you have a credit union you know and love, it’s still worth looking at options from other institutions. There might be certain features your credit union doesn’t offer that you require in your mortgage.
Mortgage officers work at financial institutions and rely on underwriters to package loans for you.
Best practice: When seeking mortgage pre-approval, get at least three quotes from three different lenders to make sure you’re getting the best rate.
No matter which mortgage lender you decide to use, the better your credit score, the more mortgage options you’ll have available. While you’re looking for mortgage lender options, you’ll want to take part in credit boosting activities. Pay your bills on time and keep credit card balances low. Lenders like to see utilization scores of 30% or less, so make sure you’re not racking up too many charges on your card. (Here’s my guide on how to pay off debt quickly.)