When it comes to selecting a mortgage lender, it pays to shop around and talk to at least three lenders for comparison purposes in what each can offer in terms of interest rates and specifics of the loan. Another option to consider is to work with a mortgage broker who can obtain quotes from multiple lenders that match your needs as detailed in your mortgage application.
Prior to committing to a specific lender, ask what type of loans that they offer. Lenders will seek to secure personal information from you along with what you are looking for in terms of a mortgage. Ask the lender to explain the pros and cons of fixed-rate loans, adjustable-rate loans, interest-only loans and negative-amortization loans. Determine which are the most popular loans offered and why buyers prefer these particular mortgages. You should also determine how much in total will you be paying over the life of the loan. Also, ask what type of mortgage would the lender recommend in your specific situation.
If the interest rate quoted is adjustable, determine its adjustment frequency, maximum annual adjustment, highest rate (CAP), index and margin. If points are quoted, each point equates to 1% of the loan amount. Points basically lower the interest rate meaning the more points you pay, the lower the interest rate. Lenders may also charge origination fees in addition to points so be sure to ask.
It should be noted that the costs of a loan include not only fees that go to the lender but also costs related to third-party vendors or fees such as the appraisal, credit report, lender’s title policy, inspection reports, escrow and recording fees. An estimate of these fees constitutes the loan estimate which lenders are required to provide buyers when an application has been completed. As part of the loan application, the following information is required: name of borrower, social security number, property address, estimated value of the property, loan amount and income. Take note of the quoted interest rate, monthly payments, lender and processing fees, closing costs and down payment requirement.
It should be noted that interest rates fluctuate and change daily. If you believe that interest rates will be going up, you should look to lock in the rate with the lender. Prior to doing this, ask the lender if there is any charge to lock in the rate and how long will the rate be locked-in. The alternative is to pay the rate which is quoted on the day your loan funds.
In some states, prepayment penalties are no longer allowed so be sure to ask if there are any charges or penalties for prepaying the loan. If penalties could result, it is important to determine how much is the penalty, what are the terms of the prepayment and would the prepayment penalty apply if you refinanced the loan with the lender at a later date.
Average loan processing takes between 21-45 days. It is important that your closing date on your purchase agreement is in line with the loan processing time frame. If the lender is not able to close on or before the closing date outlined in the agreement, the buyer would have to ask for an extension to allow the needed time for the lender to fund the loan. The seller would have to agree to this extension. Additionally, if accepted by the seller, the purchase agreement would need to to be amended to reflect the new close date and the buyer and seller would have to initial the change. Ask the lender what could possibly delay a closing in your situation and how long after the loan application has been approved will the loan fund.
Should you have an interest in buying or selling real estate in South Florida and not currently working with an agent, please contact me at JayKenney@SFPropertyTeam.com or via cell at (954) 547-9483.