It’s no secret that shopping for a mortgage can be overwhelming (wait…what’s Escrow again?). But knowing which key questions to ask can help you maintain your sanity—and even your savings. We checked in with Jack McCambridge, CEO of the mortgage website Eave, for eight essential questions every homebuyer should ask when shopping around for a lender.
Is there anything I can do to apply for a better rate?
A better mortgage rate = lower monthly payments. So yeah—you’ll want to set yourself up for success as a first order of business. Always ask if your lender has any programs or special criteria that may reduce your rate, as many lenders have their own unique policies. (For instance, some banks will lower your rate if you have a certain amount in savings with them.) Next, do these four things: 1) Improve your credit score. The higher your score, the lower your mortgage rate. 2) Put more money down. The more money you put down, the lower your rate. 3. Avoid buying points. (This can sometimes lower your final rate, but it won’t generally save you money in the long run.) 4) Apply with several lenders. You wouldn't settle for the first car or sofa you looked at, would you?
Can I pick my own homeowners insurance?
Homeowners insurance is something you’ll be paying for for a good, long time—so you’ll want to make sure you have full control to get the level of coverage you need and at a fair price. “Always ensure that the lender you work with allows you to pick your own homeowners insurance before you decide to move forward with them,” says McCambridge. Shop around and do your research: “You’ll want to find a company that is highly rated by both insurance risk rating agencies and by their own customers. So take your time to read up on what other folks are saying about them.”
What is the rate lock...and what happens if you haven't closed by the time it runs out?
A rate lock is an agreement that states that your lender will give you a loan at a specific interest rate. If you haven’t closed on your home by the time your rate lock runs out? You guessed it—it may be subject to change. This is determined by both “where market rates have gone during your rate lock period and any changes in your financials,” explains McCambridge. “If rates have gone up since you ‘locked,’ your final rate will likely go up too. If on the other hand, market rates have gone down, you may catch a break. And if your finances have changed, this could impact your final rate as well.” Ask if your lender charges a lock fee and how long they’re willing to lock for (some offer 30 days, others 45). And it can’t hurt to research where mortgage rates are likely to go over the coming weeks.
When can we expect to close?
You want to know how long you’ll be in limbo, right? Bear in mind that the national closing average is 45 days. For better accuracy, McCambridge recommends “going one step further and asking how long the lender’s average time to close has been over the past year. This ensures you’re asking how fast they can actually close vs. having them answer with their “best possible” close time. For example, if they had a smooth process on one purchase that closed in 14 days, but their average time to close is 30 days, you should expect that your loan will likely take 30 days as well. The national average to close with a mortgage is 45 days.” His advice? “Go with a lender who is consistently able to close quickly. Working with a lender who is thorough, accurate and fast will strengthen your offer.”
Can you give me an estimate on total closing costs?
OK, so you probably already know that purchasing your dream home comes with a ton of expenses—but many buyers are shocked when they’re hit with all their closing costs. And while your lender “won’t be able to predict exactly what these fees will be until you’ve chosen a property and a closing date, they should provide as much information as possible at the outset,” says McCambridge. The two main money buckets? Lender and broker fees (think: credit report fees, application fees, loan origination fees and broker fees, and third-party fees (think: property taxes, title transfer fees, and homeowner’s insurance). “Closing costs vary depending on location, lender and the cost of the home you choose,” says McCambridge. “That’s why it’s best to do your homework early in the process and work with a transparent lender, so you aren’t surprised by these costs at the last minute.” (Psst: Here’s a handy closing-cost cheat sheet to help give you an idea of what you can expect.)
If purchasing as a couple, will both parties have their credit checked?
If you’ve got great credit but your spouse doesn’t, you’ll definitely want to discuss the best buying option with your loan office. Why? Your partner’s lower score will definitely affect both your approval and, ultimately, your interest rate. “If both parties will be listed on the mortgage, a lender will check credit for both of you,” says McCambridge. “Sometimes, a couple may decide the best way to move forward is to only have one of them on the mortgage for this reason, but be careful. If you decide to do this, you’ll want to take counsel from an estate and/or financial planner. If only one of you is on the mortgage, and (God forbid) something should happen to the one who is, you’ll want to make sure your partner is taken care of.”
What happens if the house doesn't appraise?
Getting the house appraised is one of the last things to do before heading to the closing table, and if it doesn’t appraise for what you’re looking to buy it for, it’s probably not be a wise investment. Know that in addition to potentially losing your earnest money deposit (aka the ~3 percent fee you put down when you make your offer), the home not appraising could also affect getting a loan. “If the home doesn’t appraise for the amount you have agreed to buy it for, a lender is not likely to give you a mortgage for this property, unless you agree to put more money down. So, you may need to start shopping for another home or move away from buying a home all together.” One surefire way to protect yourself? “Discuss all outcomes with your lender—and be sure to include the home not appraising as a contingency in your contract.”
Is there a prepayment penalty?
There may come a time when you wish to pay off a larger portion of your mortgage. The issue? Some lenders apply hefty penalty fees for prepaying. McCambridge suggests asking about this ASAP and then avoiding the lender entirely if they do: “You never know what life may throw at you, so it’s important to protect yourself here, even if you don’t have any immediate plans to pay off your mortgage early.”