Buyers, Ask Lenders More Questions!

There is more to ask lenders than, “what am I approved for?”  Just this past week I worked with 3 buyers who were pre-approved but after speaking with them, I found out they didn’t want to spend that much on their monthly mortgage payment.  Basically, they were looking at homes that they were approved for but would not buy due to the monthly mortgage payment.

For example, if someone is pre-approved for an FHA $130,000 loan, but only wants monthly payments of $900 then the buyers should NOT be looking at houses up to $130,000.  In this case, the buyers should be looking at houses around $110,000.  Other variables that may factor into this equation are interest rate, type of loan, property taxes, down payment, and closing costs. Thus, after taking these additional data points into consideration, an agent can adequately tailor the housing inventory shown to the specific needs of their clients. 

After I explained the mortgage payments amounts to the buyers, they were understandably disappointed.  I said, “Never fear! Go back to the lender and ask more questions to get a better idea on how much you want to spend.”  Lenders are a great resource when buyers are equipped with just a few questions.    

Below are just a few inquiries buyers should be asking lenders.  If you’re a real estate agent, then make sure these questions are asked!

1.  What type of loan works for me?

There are a lot of different loans but the most common are conventional, FHA, and VA.  With conventional loans you typically need 20% down so you don’t have to pay mortgage insurance.  However, there are FHA and VA loans that don’t require as much initial payment up front. Choosing different loans will change the amount you need to bring to closing and your monthly payments. 

2.  What’s the loan amount for $X,XXX monthly payments?

See rant above about why this is important.  

3. Are you doing a hard credit check (hard pull)?

Hard credit checks show up on your credit report but lenders need to do this to give you a firm interest rate quote.  Initially, you’ll just want to speak to three different lenders or so and get a general idea of their calculated interest rate and their associated closing costs. 

Once you find lenders that you’d want to work with, you’ll want to get hard credit pulls to happen within a short period of time to minimize the impact on your credit score.

4. What’s my interest rate?

Knowing this will help you when shopping around for lenders. 

5. Do you charge for an interest rate lock?

Once you’ve decided on a lender, you may want to lock in your interest rate at some point, which ensures that the rate won’t go up…but it won’t go down, either. The best answer is, “There’s no charge for an interest rate lock.”

6. Do you have an origination fee? 

An origination fee provides additional profit for the lender beyond what’s built into the interest rate.

7. What other costs will I pay at closing?

These are fees that are charged by third parties, such as for an appraisal, a title search, property taxes and other closing costs.  Ask lenders what fees and inspections are required by law and what ones are optional.

The specific closing costs you’ll pay depend on where you live, your down payment and the size of your property.  Closing costs will usually run 3% – 6% of the total value of your loan, so the sooner you know what they are, the easier it will be to shop and compare. 

8. What are the final/total closing costs and what do I need to bring to closing?

These costs will be detailed in your official Loan Estimate document and in your Closing Disclosure, which you’ll get a few days before closing.  Again, the sooner you know what they are, the better you can prepare for them.