The process of searching for a new home and securing a low mortgage rate can be time-consuming. But, finding the right mortgage for you doesn't need to be complicated, especially when you can ask lenders a handful of simple questions. Uncovering the answers will not only ensure you end up landing that house you've had your eye on but could also reduce out-of-pocket costs.
With that in mind, Motley Fool analysts, Kristine Harjes and Nathan Hamilton, discuss in the following video three questions new homebuyers and refinancers should ask their mortgage lenders. Understanding mortgage pre-approval, your lenders turnaround time, and origination fees could mean the difference between eventual homeowner bliss or falling short of budgeting goals.
Kristine Harjes: All right, future homeowners. You are ready to get a mortgage and you're sitting down at the table with your lender. What are the most important questions to ask them?
Nathan Hamilton: So we've narrowed it down to three. These aren't all encompassing, but they are three very important questions to ask your mortgage lender. And the first one is if you're looking at a house, and you think the market's going to move quickly on it, and you need to close quickly, this is an important one. It's simply, "How long does it take to close a mortgage? What's your turnaround time?"
As I mentioned, it matters because there are a lot of hot markets across the U.S., housing-wise, and there may be multiple offers on a home. There may be cash offers and so forth. Understanding how long it takes to turn around that offer helps set expectations between the buyers and sellers.
Harjes: Exactly, and that's probably another way in which you can shop around.
Harjes: What's another question that you should ask?
Hamilton: "What fees will I be on the hook for?" And this varies. I'd love it if there was some standardization in the mortgage industry, but you can't compare rate apples to apples anymore, and some mortgage lenders will include some fees. Some will negotiate other ones. It's just very hard to get down to the details without asking. So it should be something going through each line item that you ask your lender. What fees am I on the hook for? At closing, are these rolled into the mortgage, and so forth?
Harjes: And you're entitled to that information, but if you don't ask, you might not get it.
Harjes: What's the last question?
Hamilton: So I touched upon it briefly in the last one, but "Will any of those fees be rolled into the mortgage?" And what I mean by rolled into the mortgage is am I paying those fees up front, out of pocket, or are they fees that are going to be added on top of the actual mortgage amount, and essentially you'll be incurring interest on those. It's not an out-of-pocket cost, but it is an out-of-pocket cost over the life of that loan.
And why it's important is any number you're adding on top of your mortgage -- any more additional money that you're borrowing over 30 years -- can have a huge impact on the interest you're paying. So it is very important to think, "Do I have the money to pay these fees up front?" If you do, you're going to reduce the cost of your mortgage and the all-in costs. If you don't, think about which ones could be rolled in the mortgage, and what ones the lender does offer.
Harjes: Right. As you mentioned, this can make a huge difference, so when you're shopping around, make sure that you go calculator in hand, and prepare to ask these three questions.
Hamilton: Checklist, calculator, details. Be informed.
Harjes: Absolutely. And make sure that you check out fool.com/mortgages, where you can compare different rates and also get in contact with certified lenders. You can also download our free mortgage guide called "5 Tips to Increase Your Credit Score Over 800."