When you’re a first-time homebuyer, the entire process can easily seem overwhelming. There is a lot of information to cover. As a buyer, there are certain things you will want to know. And since it’s your first time, you might not have the right questions in the back of your pocket. Your home is a big investment. Maybe the biggest one you’ll make after your car. So, you want to get this right and be as informed as you can be. Hence, there are some questions that homebuyers should ask their mortgage lenders. These are the essential ones that might get lost in the stress or frustration of the process. But breath. We’ve got you covered on the important topics.
7 Questions Homebuyers Should Ask Their Mortgage Lenders
1— How do I tell how much home I can afford?
The number one question and the first step into this journey. Knowing this will allow you to know your budget. This can keep you in line with what you can afford and how to narrow your search when you start looking at homes. By looking at your assets, income, and credit, a lender can help figure out what price range you’ll be looking at. From here, you’ll be able to make a wishlist of home features and figure out what you can reasonably afford before you start physically looking at houses. This will save you a lot of time in the process.
2— What should I look for in my credit score?
Your credit score lets lenders determine how likely you are to pay back the money you’ve borrowed. Each lender has their own standards on what is considered acceptable. This three-digit number can be a very helpful thing though. If you’ve got credit, you can ask whether or not there are other options for you. For instance, you can check if you qualify for a low-interest rate or any special offers.
3— Do I need an escrow account?
Sometimes you need an escrow account and sometimes you don’t. This is something that would allow you to save money for insurance premiums and prepaid property taxes. There are some government loans that will require this. It’s important to know whether your loan will require this. Notably, escrow accounts are optional for conventional loans. It depends on your lender on whether or not it will be a requirement. As a follow-up, find out how much you’ll need in your escrow account if you do need one.
4— Can I buy a home without my spouse?
This is sometimes an overlooked question. Depending on the laws where you reside, you may or may not be able to purchase a home without your spouse. If you live in a state with a community property statute, you have to share ownership of any assets while you are married. However, if you live in a common-law state, you can leave your partner’s finances out. Ask your lender which one applies to your state. As a follow-up, also ask about quitclaim deeds. This will allow you to add your spouse to the paperwork further down the road.
5— Do I need preapproval or prequalification?
These are two different things. It’s important to get clarification from your lender. Essentially, a prequalification will take all your financial information to get an idea of how large of a loan you can get. These aren’t verified numbers though. The preapproval is a verified assessment of your income and assets. It will go into your credit score and look for any bankruptcies and foreclosures. Ask your lender which one is right for you. It will depend on how soon or how serious you are about buying a home at the time.
6— How much of a down payment do I need?
It’s often thought that you need to put 20% down for your home. This isn’t exactly true. Actually, you can put down 3% in most cases. If you have a government-back load, it could go down to 0%. 20% comes from trying to avoid Private Mortgage Insurance. So, ask your lender what would be best for you. And if you do put down a heavy 20%, when and how you can let go of a PMI. Your lender can let you know exactly what to have when you’re ready to close.
7— What will my closing costs be?
When you’ve finally made it to this point in your journey, it’s good to have an idea about what your closing costs will be. Unfortunately, closing costs have to be paid. These are the various fees that you pay to your lender in order to close. They can be determined by how much you put down, the size of your property, and where you live. As an estimate, they’ll usually be around 3-6% of your total loan. Notably, you should be budgeting for this the entire time your searching for your home. Ask your lender about the average paid in your state. You might also want to ask about what inspections and fees are mandatory and which ones you can opt-out of.
Having a better understanding of what questions homebuyers should ask their mortgage lenders can make the process that much easier.