Questions to Ask When Looking for a Mortgage Lender
Before you meet with a mortgage broker or lender, ask them these questions to determine whether they are right for you and your needs. If you don’t like the answers they give you, continue with your search for a mortgage loan until you find a mortgage broker/lender with whom your gut feeling tells you to go with. It is a commitment after all.
1. Which Type of Loan Is Best?
Reputable lenders will find out more about you before they tell you all kinds of loan options. They mean business and they need to qualify you first and foremost. You wouldn’t expect a doctor to suggest surgery right away before knowing anything about your medical situation, would you? Choose a lender that gathers enough information from you before recommending a particular type of loan – it’s a sign of a reputable lender. And ask a lender to explain the pros and cons on these things:
- Fixed-Rate Loans
- Adjustable-Rate Loans
- Interest-Only Loans
- Negative-Amortization Loans
2. What Is the Interest Rate and Annual Percentage Rate?
The annual percentage rate (APR) is a complex calculation that includes the interest rate and all other loan-related fees divided by the loan’s term. However, know this:
- Some lenders do not compute APR correctly.
- There is no way to compute an APR rate for an adjustable loan accurately.
- An APR does not account for early payoffs of the mortgage loan.
If you have an adjustable interest rate, ask the lender its:
- Adjustment Frequency
- Maximum Annual Adjustment
- Highest Rate (Cap)
3. What Are the Discount Points and Origination Fees?
Each “point” is equal to 1 percent of the loan amount. Therefore, two points on a $100,000 loan cost $2,000.
- Sometimes lenders charge origination fees on top of points.
- Points “buy down” the interest rate – meaning the more points you pay upfront, the lower the interest rate you get for the loan.
- Points are also tax deductible, even if the seller pays some or all of the points.
4. What Are All the Costs of Getting a Mortgage Loan?
Ask not only about fees that go into the lender’s pockets but also third-party vendor fees, like:
- Credit Report
- Lender’s Title Policy
- Pest Inspection Reports
- Escrow (where applicable)
- Recording Fees
Lenders are now required by federal law to give you a Loan Estimate, which is an estimate of these fees to give you an idea of the expenses to expect.
5. What Is the Loan Estimate?
Lenders are required to give you a loan estimate when you compete a mortgage loan application. It contains all of the costs of your loan. But first, these six are typically what they would need from you:
- Name of Borrower
- Social Security Number
- Property Address
- Estimated Value of Property
- Loan Amount
6. Do You Offer Loan Rate Locks?
Interest rates go up and down daily. And if you believe that interest rates are soon moving up, you might want to lock your current interest rate on your loan. (Note that lenders typically charge zero to one point to lock a loan rate and points.) Ask the lender these questions below:
- Do you charge a fee to lock in my interest rate?
- Does the lock-in protect all the loan costs?
- For how long will you lock in this rate?
- Will you give me the loan lock in writing?
The alternative is to pay the prevailing rate and points on the day your loan funds.
7. Is There a Prepayment Penalty?
In some states, prepayment penalties are no longer allowed, so find out. Prepayment penalty is sometimes charged if you pay the mortgage loan off early, which happens when a person is refinancing or have sold a property recently. Lenders may collect an additional 6 months of “unearned interest” as penalty. Be sure to ask these:
- Is there a prepayment penalty? If so, how much is the prepayment penalty?
- What are the terms of the prepayment? (Some are in effect only during the first two to five years of the loan.)
- Would the prepayment penalty apply if I refinanced through you at a later date?
Photo: The Communication Guys
8. Are You Able to Approve Loans In-House?
Underwriters review loans and issue conditions before approving or rejecting a loan.
- Ask if a lender handle its own underwriting.
- VA and FHA loans typically take longer to process, but some lenders meet government requirements to automatically approve or disapprove a loan without sending it to the VA or FHA.
9. How Much Time Do You Need to Fund?
Average loan processing time periods range between 21 and 45 days. To properly write a purchase contract, you need to include a closing date, and that date should be coordinated with your lender. Find out about these:
- What is your anticipated turnaround time?
- What obstacles could hold up closing?
- How long after final application approval will the loan fund?
10. Do You Guarantee On-Time Closings?
A big issue is closing your transaction on time. Your purchase contract will contain a date to close escrow, but that date is generally subject to the lender’s ability to close on time. If the lender cannot close on time, then that could mean extra costs or problems for the buyer, like:
- An increase of interest rate if the lock expires.
- Additional expenses to pay movers to reschedule.
- Loss of a home if the buyer’s rental lease is over.