What Questions Should I Ask My Loan Officer?

My Loan Officer

When you are ready to refinance or purchase a new home, the first step is finding a knowledgeable professional to help guide you through securing your new mortgage. Turning to a mortgage broker is often the best option, as they have access to an abundance of lenders and loan options. Before you begin, you will likely have some questions in mind for your loan officer.

What Loan Terms Are Best For Me?

The best loan terms for you depend entirely on what your financial goals are when it comes to your mortgage. If you are buying a home, it is common to select longer loan terms such as 30 years. As you slowly pay off your loan, it will make sense to refinance at a lower interest rate because you will owe less on your mortgage and have more equity in your home. Selecting shorter terms will can increase your payments (not always), but will decrease the amount of interest you will pay over time. It is very important to keep track of rates throughout the life of your loan. If you’ve stayed in the same loan for many years, you may be paying more than you should in interest. The most common loan terms are 10, 15, 20, and 30 years, but there are offerings in between starting at 8 years. There are also adjustable rate mortgages. ARMs are oftentimes an excellent choice. Most homeowners stay in their loan for less than 10 years. That being said, it can make perfect sense to secure an ARM loan at a lower rate knowing it won’t matter that the rate will adjust with the market because you would have already refinanced by then. This is also a great choice for those who are not looking to stay in the home long term. This is great for starter homes, or even people who flip homes. Why pay more in interest in that situation when ARMs offer lower rates? There is some risk that comes along with selecting an ARM. You have to time the market right and refinance when rates are low. If you wait too long, you may be scrambling to refinance before your rate begins to adjust. There’s no saying what the market will look like and you could get stuck paying adjustable rates that are costing you more money or have to refinance into a higher rate. As long as you stay on top of your loan and rates, you shouldn’t have a problem. 

I’m Buying A New Home. How Much Do I Need For My Down Payment?

In most cases, it is ideal to have at least 20% of the value or purchase price to use as a downpayment. This shows the seller, as well as the lender, that you are a serious candidate. However, there are special exceptions and assistance for some first time home buyers, VA & FHA loans. Your mortgage loan professional will have more information on what your options are. 

What Loan Costs Should I Expect?

When you buy a new home or refinance, there are costs you need to be aware of. To begin, there may be a cost for the actual loan itself. If you want to secure a lower interest rate, you can buy the rate down and accept the loan cost. There are “no cost” options in which the loan itself does not cost you anything. This all depends on the selected rate. You can still refinance and secure an excellent rate without having to buy down the rate. Other costs to consider are third party fees. These fees are paid out to your title and escrow companies, the notary, your appraiser if applicable, etc. There are often credits that are awarded to the borrower to cover these fees, in which case you would be relieved of some or all of these fees. If not, you can cover the costs up front or incorporate the cost into your loan. If you are including escrows in your loan (your taxes and insurance) you will also see these charges. Some get confused thinking these are a part of the costs of your loan. In reality, they are used to pay your taxes and insurance. Once you close on your new loan, you may receive a reimbursement from your previous lender with the remaining balance in your old escrow account. 

Do I Need A Mortgage Insurance?

As a  lender, a property is sometimes the only collateral to recover their investment if the borrower fails to pay for one reason or another. Due to this, borrowers that are considered “high risk” are oftentimes required to pay mortgage insurance. This makes financial recovery less burdensome for the lender in the event you foreclose on your home. You can be considered high risk if you foreclosed or filed bankruptcy, or failed to have an adequate down payment. Although mortgage insurance can be a hefty additional cost, it is a burden many are willing to bear to buy or stay in their home. You can eventually get out of paying this additional cost by refinancing if you meet the qualifications. 

What Will My Mortgage Interest Rate Be?

You won’t know the exact interest rates available to you until you sit down with your mortgage loan officer and discuss your options. There are a number of factors that contribute. Employment status, income, home value, equity, and credit are all considered. You will of course have access to the best rates if you are in a favorable bracket. Someone in a top tier bracket will have consistent employment history, high credit scores, 40% equity in the home, and good income. Your mortgage loan officer or mortgage broker will assess all these factors and see what lender can offer you the most favorable rates. 

How Soon Can I Refinance? Will My Work History Affect My Ability To Secure A Mortgage?

Usually, you wait about 6 months between refinancing. Lenders require consistent payments made for a set period of time. If you are self-employed looking to refinance, you must have a 2 years history of self employment. If you are a W2 employee, you must show two years of history with little to no gaps. Even if you were employed at multiple places over those two years, as long as you were W2 and there are no unexplained gaps, you will be eligible.

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