Today, Sam Schneiderman, broker owner of Great Boston Home Team discusses mortgage basics for prospective buyers evaluating lenders in today’s lending environment.
Here’s what prospective buyers need to know before choosing a lender:
Most lenders have close to the same costs and therefore, any deal that looks significantly below the average rates for that day needs to scrutinized carefully.
There are lots of mortgage programs out there, but different mortgage programs require different combinations of credit worthiness, down payment and property criteria.
Advertised rates almost always require a top tier credit score. The lower your credit score, the more it will cost in up front "points" or a higher rate to get the promised rate, if it's available to you at all. (To understand points, see my post from July 12, 2010.)
The advertised rate may require a certain percentage of the purchase price as a down payment. If your down payment is lower, the loan may cost more or may require that you pay for Private Mortgage Insurance.
The advertised rate may be based on a short term “rate lock”. You might need a longer rate lock if you are not going to close quickly, therefore, your rate might be higher. Some lenders are known for quoting short-term rate locks, but can’t process their loans within that time frame.
Not all properties qualify for all mortgages. The lender's requirements and interest rate are likely to be different depending upon the type of property that you buy and the condition of the property. Most important, all of the above assumes that you have a regular income sufficient to make the payments on the loan.
Expect that any lender will want to run a credit report on you before committing to a specific rate.
No interest rate is guaranteed until the borrower asks the lender to lock the rate, which requires at least a written accepted offer on a specific property.
Mortgage rates can change daily or more often. When getting rate quotes it’s best to call all of the lenders that you are considering within a two or three hour time frame. Ask when the last rate last changed. Answer all questions with the facts requested, then ask the following questions if the lender hasn’t given you the answers up front:
- what types of property can be financed with the loan that you are interested in?
- are there any restrictions that you should be aware of?
- what criteria do you need to meet to qualify for the particular mortgage program that interests you?
- how long is the “rate lock” for the advertised rate?
- how long will it take to get the loan processed and closed?
- will the lender process the loan and order the appraisal upon receipt of the offer or will they wait until they get the purchase and sale agreement?
- What is required to get a pre-approval?
- How long does a pre-approval take?
Readers who’ve financed property…. What was your experience?
How did you find and evaluate your lender?
How many lenders did you evaluate?
Did you get what you expected?
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