If you’re new to the home-buying market, congratulations—and buckle up. The path to homeownership can be a bit of a bumpy one, especially for first-time buyers.
The good news? Doing a little bit of research ahead of time can go a long way toward smoothing out your journey. That’s especially true when it comes to learning what to ask your loan officer.
Keep in mind that your mortgage lender is going to be with you not only throughout the home-buying process, from preapproval to closing, but potentially for decades thereafter while you pay back the home loan. It’s a good idea to start off on the right foot for this lengthy working relationship by asking your mortgage broker the right questions.
So which ones are those? Here are two not to miss.
What types of home loans do you offer—and which is right for me?
Not all mortgage lenders are created equally—and finding the right lender is the first step toward finding the right loan. Depending on your needs as a buyer, you may benefit from a variety of different mortgage types. Here are a few of the most common:
- FHA loans are insured by the Federal Housing Administration, which means they can be easier to qualify for. These loans are popular with first-time homebuyers, who can make a down payment as low as 3.5% of the home’s purchase price with a credit score of 580 or better. (Even with a credit score as low as 500, you can still qualify for an FHA loan if you can put down 10%.)
- VA loans are offered by private lenders but backed by the U.S. Department of Veterans Affairs, and are only available to servicemembers, veterans, and surviving spouses. However, if you qualify for a VA mortgage loan, you may be able to buy a house without a down payment.
- USDA loans, which are backed by the United States Department of Agriculture, allow borrowers who purchase in designated rural areas to buy homes with no down payment. The USDA also offers Direct Loans, a form of repayment assistance, to qualified, low-income borrowers purchasing in these same areas.
- Conventional loans are those not insured or backed by any kind of government agency, and which thus tend to carry higher eligibility requirements. Conventional loans are governed by the guidelines set out by Freddie Mac and Fannie Mae, and require a down payment of 20% or more in order to avoid private mortgage insurance (PMI).
This list is not exhaustive; along with these types, there are also fixed-rate mortgages versus adjustable-rate mortgages, jumbo mortgages, and more.
One good approach is to do some research as to which kind of loan might best suit your needs, and then to narrow down your lender search by focusing on banks that offer the type of mortgage you’re after. Bonus: if you already have a basic understanding of how these different types of loans work, you’ll get some insight into your potential lender based the clarity with which your loan officer explains them.
How can I score a better interest rate?
Although the listing price may be the most eye-catching figure in the home shopping process, it’s not the only one that matters for your long-term financial situation. Along with closing costs (which could be up to 6% of the loan amount), homeowners’ insurance, property taxes and required maintenance and upgrades, there’s a cost for borrowing a six-figure sum of money—and that cost is known as interest.
Expressed in annual percentage rate, or APR, your mortgage interest rate represents the amount of money the bank will earn in exchange for the loan. (Remember that there may also be mortgage servicing fees, loan origination fees, and other costs beyond your monthly payment associated with your lender.) The higher your interest rate, the more you’ll pay in total over the life of the loan.
So how can you keep that interest rate low?
Some of it, unfortunately, is out of your control—and even your lender’s. Interest rates rise and fall based on market fluctuations and other economic conditions, as real-estate-related headlines regularly record. But borrowers can keep their interest rates as low as possible by improving their credit scores, making a larger down payment, or buying mortgage discount points upfront. Ask your lender for specific ways to improve your eligibility and lower your rate.
Looking for home loan options? You’re in the right place
Whether you’re looking to refinance your current mortgage after a credit report improvement or you’re just starting the mortgage application and pre-qualification process, Quontic may be able to offer loan terms that work for you. Along with FHA, VA, and conventional loans, we offer Community Development Loans, or CDLs, that are specifically geared toward non-traditional buyers. We take your financial decisions seriously and are committed to finding the best mortgage for your needs. Contact one of our mortgage specialists today to learn more.