If you’ve been considering the thought of buying a multifamily property through financing, the first step you need to take is to see how much of a mortgage loan you can qualify for. While there are many mortgage options to choose from, it’s important to find the right lender to help you figure out your options and guide you throughout the entire financing process.
Finding the right mortgage broker or lender can alleviate most risks involved with purchasing a multifamily property because unlike single-family homes or condos there are more complexities involved.
In order to figure out which lender you can trust to handle your purchase, you need to know the right questions to ask. This article will cover 18 important questions you need to ask any mortgage professional when shopping for someone to work with.
Remember that you can always continue looking for the right professional to help you if you don’t like the answers you receive to any of these questions.
1. How many multifamily property deals have you done within the last year?
This is important because mortgage loans for multifamily rental properties are significantly different compared to single-family homes. It is crucial that you work with a mortgage professional who is qualified to handle loans for multifamily properties. If your lender or broker doesn’t know what they’re doing, this can cause the deal to fall apart even when you’re in the escrow process.
2. Which type of multifamily mortgage loan is best for me?
This question will help you determine whether you’re talking to just a salesperson who is looking to make a quick commission or a trusted advisor who is looking after your needs. When you ask, “What are my loan options?” for each type of loan discussed, the mortgage professional should be able to tell you the pros and cons of each option depending on your financial situation and goals.
3. If you’re looking to get a specific type of loan (VA Home Loan, FHA Loan, etc.): How many of these loans have you done for multifamily properties?
This is SUPER important because, again, if the lender doesn’t know what they’re doing it can cost you the deal.
4. How much down payment will I need?
Lenders are now starting to ask for at least a 25% down payment for multifamily mortgage loans. This could change in the future, but right now it’s around 25% unless it’s an FHA loan (minimum 3.5% down payment) or VA loan (0% down payment), and that number changes all the time. It’s also important for you to know that there are considerations for every down payment option. The best lenders will usually take the time to walk you through the choices.
5. Do I qualify for any down payment assistance programs?
If you really want to size up your mortgage lender’s value, this is the question that will do it. If you get a chuckle or a sigh in response, move on. Lenders with knowledge of local, state and national down payment assistance programs along with the knowledge to help you navigate the process are well worth the hunt.
6. What is my interest rate going to be?
You probably already planned to ask this mortgage question. Lenders can move the needle on your mortgage interest rate a number of ways, most of them involving additional fees.
But after talking to at least a couple of lenders, you’ll get an idea of a ballpark interest rate you’ll qualify for. Let’s say it’s 6%. We’ll call that your payment interest rate because that’s what your monthly mortgage payment will be based on.
Knowing that you’ll move on to the next (and very important) question, about the annual percentage rate, or APR.
By the way, if you’re considering an adjustable-rate mortgage rather than a fixed-rate loan, you’ll want to ask: How often is the payment interest rate adjusted? What is the maximum annual adjustment? What is the highest cap on the rate?
7. What is the annual percentage rate?
Now that you have an idea of what your payment rate will be, it’s time to find out what your annual percentage rate is. What is the difference between the two? The APR incorporates all of the embedded fees of the loan.
Ask your lender if any discount points are included in your APR. The answer you’re looking for is “No.” You can always decide later to buy discount points, which are extra fees you pay upfront to lower your interest rate.
When you have zero-discount-point APRs from competing lenders, you can see who has the lowest fees for the same payment rate.
For example: if you’re receiving a 6% payment rate, you’re looking for the lowest APR based on that payment rate. Maybe one lender offers you a 6.25% APR, and another a 6.5% APR. The 5.25% APR lender is charging you fewer fees.
However, having a higher APR isn’t always a bad thing.
Say you’re buying your “forever home.” If you buy discount points to lower your payment rate, you’ll have a higher APR. But after some years, you’ll make up for the additional fees by paying less in interest thanks to that lower payment rate.
8. Are you doing a hard credit check on me today?
It’s always good to know when the lender is going to perform a “hard” credit check, called a “hard inquiry.” That type of payment history inquiry shows up on your credit report. Lenders need to do this to give you a firm interest rate quote.
When you’re shopping more than one lender, you’ll want these hard credit pulls to occur within a short period of time — say within just a week or so — to minimize the impact on your credit score.
9. Do you charge for an interest rate lock?
Once you’ve decided on a lender, you may want to lock in your interest rate at some point. This ensures that it doesn’t go up — though it won’t go down, either.
The answer you’re looking for on a typical home loan (not a construction loan) is: There’s no charge for an interest rate lock.
10. Will I have to pay mortgage insurance?
If you are paying less than a 20% down payment, then the answer will probably be “Yes.“
Even if the mortgage insurance is “lender paid,” it’s likely passed on as a cost built into your mortgage payment, which increases your rate and monthly payment. You’ll want to know just how much mortgage insurance will cost and if it’s an upfront or ongoing charge, or both.
Then, ask the lender what your options are. The answer may be just, “Make a bigger down payment.“ Or you may find there are other loan programs that you might qualify for that don’t require mortgage insurance.
11. What will my monthly mortgage payment be?
You’ve probably asked this question already. But knowing what your monthly mortgage payment will be is the key to the whole deal, right? You’ll also want to ask if there is a pre-payment penalty if you pay off the mortgage early in case you move or refinance. The answer should be “No.“
12. Do you have an origination fee?
An origination fee provides additional profit for the lender beyond what’s built into the interest rate.
13. What are all of your lender fees?
Be sure to specify “lender fees.” They’ll know what you mean because there are also additional costs, which you’ll ask about next.
14. What other costs will I pay when the deal is finalized?
Fees charged by third parties, such as for an appraisal, a title search, property taxes, and other closing costs are paid at the loan signing. These costs will be detailed in your official Loan Estimate document and your almost-time-to-sign Closing Disclosure. But the sooner you know what they are, the better you can shop, compare — and prepare — for them.
15. How (and how often) will I be updated on the loan’s progress?
Will you have a single point of contact throughout the mortgage loan process? And how will you be updated on the progress: by email, phone, or an online portal? Establishing your service expectations upfront, and seeing just how eager the lender is to meet them, will give a clear point of comparison among lenders.
16. Do I have to sign all the paperwork in person?
Because of social distancing requirements brought on by the coronavirus pandemic, signing closing documents electronically is becoming more popular — and necessary.
A mortgage “e-closing” is likely to proceed faster than a traditional mortgage closing, and you’ll probably be better informed about what’s happening every step of the way.
One other benefit of e-closings: Electronic documents can’t be submitted with a missing signature. On a paper document, a missing signature might not be detected immediately, causing headaches and delays.
17. How long until my loan closes?
Of course, you want to know what your target closing and move-in dates are so you can make preparations. And just as important: Ask what you should avoid doing in the meantime — like buying new furniture on credit and other loan-busting behavior.
18. Do you offer preapproval or prequalification?
A prequalification generally means that a mortgage lender collects some basic financial information from you to estimate how much you can afford for a property, but nothing is verified. Don’t waste time with a prequalification because a preapproval is what you’re looking to get if you’re serious about buying.