Buying a home should be an exciting experience. Sure, there are potential speed bumps along the journey to your dream home and gaining knowledge about the process before starting the search can help avoid surprises.
In our all-digital, all-day society, it’s no surprise that many prospective buyers start by searching online for properties – 41% of recent buyers did so, according to a National Association of Realtors® survey published in 2021. Another 19% of buyers first contacted a real estate professional.
While there is no right or wrong answer, it is generally best to begin by researching and interviewing mortgage lenders. That’s assuming a buyer will need help financing the purchase – about 87% do. (If you are buying a property with cash, then you can stop reading this post!)
In the same survey of approximately 5800 buyers, only 9% – and 12% of first-time buyers – started their home journey by contacting a lender. Older research showed that about half of all buyers choose the first lender they found even though interviewing two or more could save thousands of dollars in lower interest and fees.
Having a frank conversation with lenders – who, by the way, are paid to help you secure the best possible terms – is a great way to start the buying experience. It allows you to understand what to expect through the process and, most importantly, how much home you can afford. (Some people work with a mortgage broker who can have access to several lenders and a wider selection of loan products and terms.)
No matter where you find a lender – through a broker, bank or credit union, friend or trusted real estate pro – it’s important to know what questions to ask. This will allow you to compare against one another in search of savings and a good fit.
What information does a lender request to begin the mortgage application process?
Most lenders will give consumers a list of items to bring for the first face-to-face meeting. This could include pay stubs, bank statements and photo ID, among other items.
What steps are taken to determine a mortgage approval?
In addition to learning those next steps, find out how long the pre-approval will be valid. Typically, the terms are locked for 30-60 days and can be updated as needed.
Can you explain what to expect when paying for the home at closing?
Make sure the lender’s timelines match your home-buying goals and that the lender will be responsive throughout the financing process.
What will be my down payment requirement?
A minimum down payment will depend on the type of loan a lender recommends. Talk to the loan consultant about what you have saved, how much you would like to put down and your goals for a monthly payment.
Do you participate in any down payment assistance programs?
There are dozens of homeownership programs available across the state that can help save on down payment and closing costs. About 75% of all active residential listings in the Northwest Multiple Listing Service are eligible for at least one program. Some lenders offer their own proprietary assistance as well, while other lenders do not participate at all.
What fees will be included in my loan and what will be due at closing?
Lender fees will be included, no matter what loan product is chosen. These may include origination fees, the cost of writing the loan and other costs. Fees are just as important as the interest rate and there are ways to lower both the rate and fees. Ask lenders to outline fees based on personal situations and the different loan options.
Can I negotiate some of the terms?
There’s no harm in asking lenders if they can give you better terms than the original ones quoted. You also can ask whether they can beat another lender’s offer. For example, you might ask the lender to waive or lower one or more of its fees or agree to a lower rate or fewer points.
How do you communicate with homebuyers?
Communication is key in life and that could not be truer than in the home-buying process. You never want to be the last to know. Will you have an account representative who will inform you of updates? Do they offer an online system with notifications? When considering the right lender for you, think about how you prefer to communicate and what works best for you.
Use these conversation starters to interview mortgage lenders before you start searching for a home. Asking these important questions will help you zero in on the lender that’s right for you, while also providing a better understanding of the home loan process.
Research by the Consumer Finance Protection Bureau found that a borrower taking out a 30-year, fixed-rate conventional mortgage could get rate quotes that vary by more than a half-percent. That could translate into saving thousands on your mortgage.
Don’t be afraid to ask. It may save you in the end!