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Feb 27, 2023

9 Questions to Ask Your Mortgage Lender

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So, you want to buy a home? Whether you are a first-time home buyer, an experienced buyer, or just looking to refinance a home loan, obtaining a mortgage can be stressful. To make your home buying process as seamless as possible, it is important to do your research and have a list of questions ready. At TruStone Home Mortgage, we work hard to make sure your next home purchase can be as easy as possible. Here are some of the most common and important questions to ask your Mortgage Consultant.


1. What is the right type of mortgage for me?

There are many factors that go into choosing your mortgage. Some key items to think about are: Should the rate be fixed or adjustable? How long should the loan term last? Should you choose a conventional loan or a government-backed loan? How much will you be borrowing? Here’s a breakdown of the different types of loans you may consider when buying your next home:
  • Fixed-Rate Mortgage: The interest rate for a borrower’s loan is set at the beginning of the loan term and cannot be changed unless you refinance your mortgage.
  • Adjustable-Rate Mortgage: The interest rate is periodically adjusted based on an index and margin.
  • Short-Term Loan: Terms can range from 10-15 years. Short terms loans typically have a higher monthly payment at a lower interest rate.
  • Long-Term Loan: Terms can range from 15 all the way to 40 years (although rare). Long term loans typically have a lower monthly payment, but a higher interest rate.
  • Government-Backed Loan: Loans insured by a government agency. Examples of these loans could be FHA loans or VA loans. These loans typically have more lenient credit score requirements, however they may have restrictions and additional fees.
  • Conventional Loan: This is the most common type of loan. This type of mortgage is backed by private lenders like TruStone Financial and typically have better interest rates and flexible term options. However, they do normally require a higher down payment and a higher credit score compared to government-backed loans.
  • Jumbo Loan: Exceeds the loan limit established by Freddie Mac and Fannie Mae. Due to the high loan limit, borrowers are expected to have stellar credit scores and put down a larger down payment.
 

2. How do I qualify for a mortgage loan?

Before a borrower is approved for a mortgage, the lender will assess the borrower’s credit score, debt-to-income ratio, income and down payment. The threshold for each of these categories will vary, depending on the type of loan and the lender.


3. Is there a difference between preapproved and prequalified?

In short, yes, prequalification is one of the first steps in the home buying process when you receive an estimate for how much you are able to borrow based on the financial information you provide. Preapproval is a later step, after you fill out a mortgage application, when your lender will verify your information and hopefully preapprove you for a specific loan amount.   TruStone offers our members prequalification, reach out to a mortgage consultant for additional information.


4. How much can I afford?

To determine how much you can afford, two key factors to consider are your income and your debt. A general rule of thumb is to follow the 28%/36% rule, which means do not spend more than 28% of your gross annual income on housing costs and no more than 36% on debt (including housing, credit card, student loans, etc.). This is typically a good rule to follow when dealing with conventional loans.  You can use our Mortgage Qualifier Calculator to help determine how much you can borrow.


5. How much money do I need for a down payment?

Depending on the type of loan, down payments can range anywhere from 0% to over 20% of the value of your home. If you qualify for a VA government-backed loan, a down payment will not be necessary when purchasing a home. On the other hand, if you qualify for a conventional loan, then the minimum down payment is around 3%. If you can afford it, making a higher down payment can be beneficial in the long run by decreasing your monthly mortgage payments and avoiding additional fees.


6. What is the annual percentage rate?

The annual percentage rate (APR) is the yearly percentage charged by a financial institution on a loan The Formula for APR is: APR = ((Fees + Interest) x 1-year x 100 / Principal amount, number of periods for loan).
There are also two types of APR, fixed APR and variable APR.  A fixed-rate APR or fixed APR sets an APR that does not fluctuate with changes to an index.  A variable-rate APR or variable APR changes with the index interest rate, such as the prime rate published in the Wall Street Journal.


7. What are discount points?

Discount points, also known as mortgage points, are interest fees paid to the lender at closing in exchange for a lower interest rate. Make sure you ask your lender how many points are included in your quoted interest rate, if applicable.


8. What are the estimated closing costs?

Closing costs consist of various fees, insurance, taxes, and upfront interest, or points. On average, closing costs can range anywhere from 3% to 5% of your total loan. Prior to closing your loan, you will receive a Closing Disclosure which will list out all your costs.


9. How long will it take to close?

Closing dates can vary based on a variety of factors and can take anywhere from a week to two months. Asking your Mortgage Consultant for an estimated timeframe can help you plan accordingly. And, as always, be sure to keep in close contact with your lender because delays can happen. Learn more about the home buying process.
Bottom line, buying a home is a huge achievement and should be fun. Yet, because the world of mortgages can be complex it is easy to get overwhelmed with the terminology and process. Let us walk you through it and find a loan that fits your needs, we’re here to help. Contact us today to get started.
 
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