By Anthony Powell, Chief Operating Officer, AAFMAA Mortgage Services LLC
You may think talking with mortgage lenders is intimidating — they throw around terms you’ve never heard before. You may not feel comfortable asking questions, even though you probably will have many to ask! And, unfortunately, the whole thing may seem so daunting that you only meet with one lender and just take what they are offering. Ideally, you should meet with several lenders to compare your options.
Doing so may help you get the right loan for your needs and situation, plus get a lower interest rate and lower closing costs. This may save you thousands of dollars over the short and long term. With that in mind, here are five questions to help you find your perfect mortgage lender.
Question 1. How long have you been in business, and are you experienced with buyers like me?
This answer should be several years, and YES.
You want an originator who’s been around for at least five years. Be sure to check with the Better Business Bureau and state accreditation agencies to see if there have been any complaints and to verify their licensing.
Just as important, make sure the lender has experience with your specific type of loan. For example, as a servicemember or Veteran, you should choose a mortgage lender who is knowledgeable about the Department of Veterans Affairs (VA) Loan program.
Question 2. What are the loan terms?
Be sure to ask questions about the interest rate, annual percentage rate (APR), type of loan, loan term, and private mortgage insurance (if required).
The interest rate should be fairly straightforward and based on the government’s prime rate. Ask the lender if you’re able to “lock in” a rate and for how long. If it will take the lender 35 days to close your loan, a rate lock that lasts only 30 days is not going to be long enough.
APR is a complex calculation that includes the interest rate and all the other related lender fees divided by the loan term. If a lender quotes you an adjustable rate mortgage (ARM), ask them how often your rate could change (adjustment frequency), what is the most it could change in a year (maximum annual adjustment), what is highest possible rate they could charge you (rate cap), what benchmark interest rate (index) do they use to determine the changes in your rate, and what amount of additional interest (margin) will they add to that index rate to determine the final interest rate that you will pay.
You should also discuss the loan term. Loans with a 30-year payback term could offer lower monthly payments than a 15- or 20-year loan, but they could have higher interest rates. A shorter term means you're paying off the principal faster, so you'll pay a lot less in interest over the life of the loan if you can afford to make larger monthly payments.
The loan type is important, too. Your lender should tell you about conventional loans (Fannie Mae/Freddie Mac), as well as Federal Housing Administration (FHA), and VA Loan options. If you are able to qualify for a VA Loan, it’s often the best option for servicemembers and Veterans. An experienced Military Mortgage Advisor can let you know for sure if the VA Loan is right for you.
Finally, ask about private mortgage insurance (PMI) and if you will have to pay for it. PMI is insurance you buy to protect your lender from the possibility that at any point you won’t be able to repay your mortgage. With conventional loans, if you don’t put 20% down, you’ll have to pay PMI each month. There is no PMI on VA Loans, but there may be a VA funding fee. Again, your Military Mortgage Advisor can go over these options with you.
Question 3. What fees will be included?
The lender determines the cost of your loan using several factors, including your loan terms (15 years, 30 years, etc.), your credit score, debt-to-income ratio (DTI), and the loan type.
Some lenders will advertise a low rate, but check the fine print! Most likely, you can only get that low rate by paying “points” — additional upfront fees to the lender — at closing. A point is equal to 1 percent of your loan amount. For example, let’s say you’re shopping for a $300,000 mortgage and your lender quotes you an interest rate of 4 percent. However, they say that they will lower your rate to 3.5 percent if you pay 2 points — or $6,000 — at closing.
According to the Know Before You Owe mortgage disclosure rule, in order to help you understand your fees your lender must provide you the Loan Estimate three days from the time you apply and the Closing Disclosure three business days before closing. Those time buffers allow you to compare costs and ask your lender about any discrepancies.
Question 4. What’s the process? Anything I should or shouldn’t do during this time?
You’ll want to make sure the lender’s timeline lines up with your home-buying goals, whether you’re planning to take six months, 12 months, or longer to purchase a home. Also, ask about the closing process. Where will it take place? Does the lender work with a particular law office or do they handle it in-house? All of these factors could play a role in the timing and logistics of closing your loan according to plan.
Order your free credit report in advance to review for any errors or issues you may need to address. You can order your report online from annualcreditreport.com, the only federally authorized website for free credit reports, or call 877-322-8228. Your lender should inform you when they will be pulling your credit score from the credit bureaus. During this time, you shouldn’t open or close any accounts or initiate new lines of credit for any other large purchases that could impact your score while you’re in the mortgage application process.
Question 5. How do you prefer to communicate?
You never want to be the last person to know what’s going on. Ask the lender how they prefer to communicate with buyers and see if that works for you. Do you prefer text messages? Email? Phone calls? Some combination of those? Choose a lender who’s eager to communicate with you in the way that you prefer.
We’re here to help
AAFMAA Mortgage Services LLC (AMS) is happy to provide an honest and fair comparison of your mortgage options. We have professional Military Mortgage Advisors who understand the unique benefits and challenges of military life — in fact, many of us are Veterans or military spouses with lots of experience issuing VA Loans. Our mission is to ensure you get the best possible mortgage for you, even if that means getting it from another lender.
Go online and request your free mortgage assessment from AMS today. Or call us at 844-422-3622 and speak directly with a licensed Military Mortgage Advisor. We look forward to serving you.
Anthony Powell, individual NMLS #78385, is the Chief Operating Officer of AAFMAA Mortgage Services LLC and has more than 20 years of experience in the housing finance industry. He is also a Veteran of the US Navy, so he deeply understands the mortgage needs of the military community.
AAFMAA Mortgage Services LLC is an Equal Housing Lender. All loans subject to credit approval. This is not a commitment to lend. See a complete list of state licenses and disclosures at www.aafmaa.com/mortgage.
NMLS #1423968, see: https://nmlsconsumeraccess.org/.