Always ask the relevant mortgage lender questions when shopping for mortgage lenders, and well before you make a commitment to use their services. And, continue shopping for the right lender until you find a lender you feel comfortable with, someone who will assist you in finding the right mortgage product for your goals, not theirs.
Keep in mind, too, that the more your lender knows about your goals for the transaction, the better advice, assistance, and information they can give you.
1. Which Type of Loan Is Best for You?
Reputable lenders will want to find out more about your plans for the subject property before recommending loan options. Choose a lender who gathers enough information from you before recommending a particular type of loan, it is important to match the mortgage product with your overall financial strategy which may include housing term, tax consequences, and resource allocations.
Ask the lender to thoroughly explain the pros and cons of the mortgage products they have; fixed-rate loans, adjustable-rate loans, interest-only loans, and discover how each would fit in with your own personal circumstances.
2. What Is the Interest Rate and the Annual Percentage Rate?
A loan’s annual percentage rate (APR) is derived through a calculation that includes the interest rate expense and all the other related APR designated fees divided by the loan’s term. Not all lenders compute APR correctly, and it’s virtually impossible to accurately compute an APR rate for an adjustable loan. And, APR does not account for the early payoff of the mortgage, which would, in fact, increase the APR substantially.
The one case in fixed-rate financing that the APR is the same as the actual Note Rate, is in the case of No Closing Cost transactions. When the only expense of borrowing the funds over the entire loan term, is the interest rate on the mortgage, the rate of interest is the APR.
3. How Much of a Down Payment Is Required?
The minimum down payment for conventional mortgages is 3%, the minimum for FHA Government financing is 3.5%, the down payment requirement for VA financing is 0%, but there are pros and cons to leveraging into real estate. Compare all options when deciding on down payment, and remember, the lower the down payment, the less equity remaining in the property and the higher the risk in the transaction, for the lender. Higher risk always means higher cost in financing.
4. What Are the Discount Points and Origination Fees?
A Discount Point is equal to 1% of the loan amount therefore, two points on a $100,000 loan would cost you $2,000. These points are paid by the borrower to permanently buy down the rate of interest on the loan, for the entire loan term. The more bona fide discount points you pay, the lower your interest rate will go, but only so far. True discount points are also tax-deductible, but not necessarily in the year they are paid.
Sometimes lenders charge loan origination points in addition to discount points. This is an additional source on income to the lender, in addition to the rate of interest they’re charging you.
5. What Are All the Costs?
The entire cost of a loan includes not only points and fees that go to the lender, but also related third-party vendor fees from required service providers in the transaction, such as; appraisals, credit report, the title policy, pest inspection reports, escrow and settlement fees, recording fees, and taxes.
An estimate of these fees should be accurately included in a document called the Loan Estimate, which federal law requires that the lender delivers to you, once you have submitted a loan application.
You should ask for an estimate of these costs upfront, however, well before you apply for the loan. Many internet bankers, including Empire of America, have advanced pricing engines wherein you can see all points, lender fees and service provider expenses, 24/7.
6. Can You Get a Loan Rate Lock?
Interest rates fluctuate and change several times daily, so you might want to lock your loan if you have reason to believe that interest rates will go up. Lenders typically do not charge fees to lock in a loan rate, be sure to ask if they charge a fee. The alternative is to pay the prevailing rate, points, and fees on the day your loan closes.
7. Is There a Prepayment Penalty?
Prepayment penalties are no longer allowed in conventional lending and it is rare to see them at all. These penalties allow the lender to collect additional “unearned interest” if the loan paid off early, either through a refinance or the sale of the property.
8. Direct Lender and Approves Loans In-House?
Underwriters review loans, then issue conditions before final approval or denial. Find out if your lender is an underwriter of mortgages, or if this important credit task is assigned to outside agencies. In house underwriters can offer faster turn times and, in many cases, may be more efficient.
VA and FHA loans typically take longer to process, but some lenders meet government requirements to automatically approve or disapprove a loan without sending it to the VA or FHA for approval.
9. How Much Time Do You Need to Fund?
Loan processing time varies depending on market conditions, but the average for Empire of America is 21 days. You must include a closing date to properly write a purchase contract, so you’ll have to coordinate this closing date with the ability of your lender to perform. Find out if there are any anticipated obstacles that could hold up closing, and the what the earliest possible estimated closing date for the transaction.
10. Do You Guarantee On-Time Closings?
Closing your transaction on time is important, and your purchase contract will include the closing date of the transaction, and the lender will be expected to close on time.
It may mean extra costs or problems for the borrower if the lender does not perform for one reason or another. Ask your lender about any increases in cost to your rate-lock commitment lock expires, and what happens with any additional expenses.
Many lenders, including Empire of America, have closing guarantees, which means if the transaction does not close on time, the lender will pay a flat fee penalty to the borrower.
If residential real estate investing is part of your American dream, get to know your options. We can help. Contact a friendly and professional Empire of America direct lender today.