How to choose a mortgage lender.
What matters to you?
Consider what matters to you most:
- Rate: What rate is being offered? Can you lock in the rate or is it a ARM (Adjustible Rate Mortgage)
- Repayment Period: What is the period allowed to pay back the loan. As a home loan involves huge sums of money, it is always prudent to check that a lender offers extended periods of loan repayment.
- Penalties: Whilst a mortgage is a long term commitment, you may want the flexibility of paying back in a shorter period so as to save on the interest you have to pay over the period. Enquire from prospective lenders if this is allowable and if there are any penalties for early settlement.
- Amount financed: Does the lender have a cap on how much they can finance you for your home? And does this cap (if any) work for your needs?
- Purpose of the loan: Do you want to purchase a ready made house or do you want to take the funds and use them to build your own dream home? Is this acceptable to the lender?
Talk to a lender
Factors to Consider
For most of us, a mortgage is a lifelong commitment. This therefore calls for careful planning and selection before making a decision on this vital matter.
When it comes to selecting a lender, most people automatically think that the one with the lowest rate is the best choice. This is far from true. There are several factors to consider when shopping for a lender. This article aims to offer tips on how to find a good fit for your needs.
What would influence you most to choose a lender?
Things to look out for
1. Observe the way the lender responds to you when you first contact him or her. Are they friendly? courteous? knowledgeable?
2. A good lender will first listen to your needs and then offer a solution tailored to meet those specific needs. You should be given choices to pick from and not just forced to pick whatever the lender suggests.
3. You need to find out how the person you are dealing with is getting paid. Are they paid on commission basis or salary basis? This will help you gauge whether this person is just out to make a sale or is giving you the best information available.
4. It would also be a good idea to contact friends or acquaintances who have been financed by the lender so that you know what to expect. Referrals are always a good pointer to how the lender will treat you as behaviour rarely deviates by a wide margin.
Questions to ask
1. What are your loan programs?
As all lenders have different product profiles with associated features, it is wise to ask for a full description of what is on offer so that you can pick what fits best with your plan. By asking this question, you may be surprised to find something you had not even considered that will make all your plans fall into place.
2. Can I see a Good Faith Estimate right away?
A Good Faith Estimate is an estimate that must be provided by a mortgage lender or broker in the United States to a prospective customer. It must include an itemized list of fees and costs associated with the loan and must be provided within three days of applying for a loan.
The fees included in a Good Faith Estimate fall into six basic categories:
- Loan fees
- Fees to be paid in advance
- Title charges
- Government charges
- Additional charges
It is important to understand upfront what all these fees and charges are to avoid being caught unawares and falling into problems in future
3. How long will it take to get approval?
All banks and financiers have different timelines in which they approve or decline loan applications. Ideally it should not take more than a week to know whether or not you qualify for financing. Being aware of the time frame will help you to plan better and to start getting the other requirements such as fees to be paid ready in time.
4. How are the payments structured?
Are payments made monthly, quarterly, half-yearly or annually? Is there an option to switch from one to another? Do I have a pick of which one works best for me?
Types of fees
These costs are supposed to reflect the work that goes into creating your loan
1-1.5% of loan amount
Lenders hire appraisers to evaluate your property value vis-a-vis the loan you require
Private Mortgage Insurance
A policy provided by private mortgage insurers to protect lenders against loss if a borrower defaults.
Up to 1.5% of loan amount to prepay first year
A form of property insurance designed to protect an individual's home against damages to the house itself, or to possessions in the home.
$300 to $1,000/yr. depending on home price
Points are a one-time charge that may be negotiated with the lender, usually to reduce the interest rate you pay over the life of your loan. One point equals 1% of the loan amount.
0% to 3% of the loan amount
The lender will calculate how much interest you owe for the part of the month in which you settle (for example, if you settle on August 16, you would owe interest for 16 days--August 16 through 31).
Depends on the loan amount, interest rate, and number of days since settlement (for example, a $120,000 loan at 6% for 16 days, about $220; a $142,500 loan at 6% for 16 days, about $375).
FHA, VA, and RHS fees
If you are getting a mortgage insured by the FHA or guaranteed by the VA or the RHS, you will have to pay FHA mortgage insurance premiums or VA or RHS guarantee fees
FHA - 1.75% of loan amount, VA - 1.25-3.3% of loan amount depending on your down payment, RHS - 2% of the loan amount
Some lenders require that you set aside money in an escrow (or reserve) account to pay for property taxes, homeowner's insurance, and flood insurance (if applicable)
Depends on amount at certain period
Mortgage Repayment Calculator
- Mortgage calculator: Estimate your home loan payments
This easy-to-use mortgage calculator helps determine how much you will pay on your home loan. It can also estimate your property taxes, insurance and PMI.
When all is said and done
In the end, being in the know of all the factors relating to getting mortgage financing will assist you in picking the right lender. It is very prudent to shop around (at least 3 providers) before committing to one. This will assist you to make the best possible choice and ensure no headaches relating to your property in future.