After years of diligently saving for a down payment, there comes a time when you’re ready to leap into homeownership. Buying a home is an exciting milestone, but the process can feel overwhelming for first-time buyers. With so many mortgage options available, making decisions can become cumbersome. As a result, nearly half of borrowers fail to shop around mortgage lenders when buying a home.
And we get it. It’s not easy to know all the right questions to ask a lender. Much like financial planning and filing taxes, they don’t teach “buying a home 101” in school. Luckily there’s no time like the present to learn.
What is a mortgage lender?
In the simplest terms, a mortgage lender is a financial institution such as a credit union or bank that underwrites home loans. Your lender starts by assessing the risk of lending you money based on your credit history and financial situation. Once your application is approved, your lender sets the terms, interest rate, and repayment schedule for your home loan. It’s essential to understand the terms when borrowing money, which is why we recommend starting with these questions.
What is the process for preapproval for buying a home?
To be ready to negotiate with the sellers when you find the perfect home, a preapproval can be beneficial. Essentially, a preapproval is an official document outlining how much money your lender will allow you to borrow based on your financial situation.
To provide a preapproval, your lender will need certain information. Typically, this includes a hard credit check and thorough analysis of your financial history, including income, debt, and credit. Ask them what they need and how long your preapproval letter will last. In most cases, a preapproval is valid for 30 to 90 days.
What is the mortgage interest rate?
A mortgage interest rate is a percentage of your total loan that’s paid monthly in addition to paying off the actual amount of your loan. Think of it as the cost of borrowing money. Your interest rate will depend on things like your credit score, down payment amount, home value, loan type, and term length. Due to your personal financial situation and larger economic factors, interest rates can fluctuate from one lender to the next. Know what you’re getting into before you sign on the dotted line.
Is there a prepayment penalty?
There are many reasons you might want to pay off your mortgage early. For example, if your income increases substantially during your loan term, you may want to save money by reducing the remaining mortgage interest rate payments. However, some lenders charge prepayment penalties for paying in advance. These penalties can vary from one lender to the next, so ask your lender early on.
Get a Home Loan with DEXSTA
Whether you’re in the early stages of saving for a down payment or you’re buying a home this year, DEXSTA offers a variety of home loans to help you unlock the home of your dreams. Got more questions? We’ve got answers. Get in touch to discuss your mortgage options.