There are ways to prepare yourself for the first meeting with your lender or broker so that it runs as efficiently as possible, without having to learn all of the mumbo jumbo and searching through an enormous amount of information. Knowing the basic terms and concerns and asking these questions before meeting with your lender or broker will show them that you are ready to move forward.
1. What is the annual percentage rate on the mortgage interest?
To know exactly what you will be paying over the length of your loan, you should have an understanding of your quoted rate, because rates can change quickly.
You should weigh all of your options for a mortgage to find the loan that best suits you. Ask about the APR of the mortgage interest, which is usually higher than the rate quoted initially because it includes all lender's fees. The truth-in-lending law establishes that brokers and lenders must disclose the annual percentage rate or APR within three business days of the loan application, so it is always a good idea to first speak with your broker or lender about the APR.
There are a number of federal laws protecting consumers during the loan processing phase. You should be aware of them. The Fair Housing Act, The Fair Credit Reporting Act and the Equal Credit Opportunity Act all prohibit discrimination of the consumer.
Once you apply for a loan, the lender or broker may take the precautionary steps as required by law:
Truth-in-Lending Law requires the lender or broker to come to terms on the disclosed annual percentage rate within three business days of your loan application. This agreement must be made before the first transaction is completed.
The Good Faith Estimate should be completed before applying for the actual loan. What you are estimating are the closing costs the lender or broker must provide within three days of applying for the loan.
The Servicing Disclosure Statement is drawn up by your lender or mortgage broker, in which he/she informs you of whether the loan will be kept or transferred for servicing.
After these steps are completed, your loan can be processed, a procedure that normally takes 45 to 60 days to complete.
2. What items will you need to have to ensure the meeting with your lender or broker goes well?
There are a few forms that will be needed in the meeting. These generally include:
Tax returns and W-2 forms for the past two years.
A paycheck stub with Social Security number on it.
Documents to show proof of work, benefits, bonuses, etc.
A comprehensive list of creditors, credit cards, etc.
You may need other documents. It is wise to call the business or person you are meeting with and ask for any specific documents you will need to have.
3. Deciding what loan will suit your needs
There are two types of loans a person can apply for. They are an adjustable rate mortgage (ARM) or a fixed mortgage. To see which one is right for you consider these things: how long do you intend to live in the house; how frequently does the ARM adjust; and the worst-case scenario, what happens if interest rates rise, which in turn affects your monthly payment?
How long do you intend to stay in the house? An ARM is a good idea if you plan to stay in your house for a few years because you will be able to take advantage of low rates.
How often does the ARM adjust? First there is a “fixed” period, then most adjust every year, some every three years.
This is just a precaution so that if something were to come up, you have a backup. You will want to do your own research and compare a fixed rate mortgage to an ARM to best understand the various scenarios.
Also, ask your lender about the different loan programs you can apply for, including those through the Federal Housing Administration, Veterans Administration, Rural Housing Service, Fannie Mae and your local and state government programs.