Questions to ask your Lender or Mortgage Broker
How to interview your Mortgage Lender
1. Which Type of Loan is Best
Reputable lenders will find out more about you before throwing out loan options. You wouldn’t expect a doctor to suggest surgery before they assessed your medical situation, would you? Choose a lender who gathers enough information from you before he/she suggests a certain type of loan. Don’t be afraid to ask a lender to explain the pros and cons about:
- Fixed rate loans
- Adjustable rate loans
- 15 year or 30 year programs
- FHA vs. Conventional programs
2. What is the Interest Rate & Annual Percentage Rate
The annual percentage rate (APR) is derived by a complex calculation that includes the interest rate and all the other related lender fees divided by the loan’s term. However, bear in mind that:
- Some lenders do not compute APR correctly.
- There is no way to accurately compute an APR rate for an adjustable rate loan.
- An APR does not account for early pay-offs.
If your interest rate is adjustable, ask about its:
- Adjustable 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, 2 points on a $100,000 loan would cost $2,000.
- Some lenders charge origination fees in addition to points.
- Points ‘buy down’ the interest rate, meaning the more points you pay, the lower the interest rate.
- Points are also tax deductible, even if the seller pays some or all of the points.
4. What are ALL the Costs
All the costs of a loan include not only fees that go into the lenders pocket but also related third-party vendor fees such as:
- Credit Report
- Lender’s Title Policy
- Pest Inspection Report
- Escrow Fees
- Recording Fees
An estimate of these fees constitutes the ‘Good Faith Estimate’ or GFE, which the lender is required by federal law to give to you.
5. Will the Lender Guarantee the GFE
According to the Real Estate Settlement and Procedures Act (RESPA), lenders have three days after you’ve applied for the loan to give you the ‘Good Faith Estimate’, containing all the costs of your loan. Points to consider:
- Since lenders are not required to guarantee GFEs, this document is worth about the cost of the paper on which it is printed.
- However, there is a lot of pressure on lenders by consumers to guarantee their GFEs.
- If the lender refuses to stand behind its estimate, go elsewhere.
6. Do you Offer Loan Rate Locks
Interest rates fluctuate and change daily. If you have reason to believe that interest rates are moving up, you might want to lock your loan. Lenders typically charge zero to one point to lock a loan rate and points. Ask your lender:
- Do you charge a fee to lock my interest rate?
- Does the lock-in protect all the loan costs?
- Will you give me the loan lock in writing?
The alternative is to pay the prevailing rate and points on the day your loan is funded.
7. Is There a Prepayment Penalty
In some states, prepayment penalties are no longer allowed, so ask. Typically, prepayment penalties let the lender collect an additional six months of ‘unearned interest’ if you pay the loan off early through a refinance or sale of the property. Be sure to ask:
- How much is the prepayment penalty?
- What are the terms of the prepay? Some are in effect only during the first 2-5 years of the loan.
- Would the prepayment penalty apply if I refinanced through you at a later date?
8. Are you Equipped to Approve Loans In-House
Underwriters review loans and issue conditions before approving or rejecting a loan.
- Ask if a lender can 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 fall between 21 and 45 days. To properly write a purchase contract, you will need to include a closing date, and that date should be coordinated with your lender. Find out:
- What is your anticipated turnaround time?
- What obstacles could possibly hold up closing?
- How long after final application approval will the loan fund?
10. Do You Guarantee On-Time Closing
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, that could mean extra costs or problems for the buyer such as:
- Increase of interest rate if lock expires
- Additional expenses to pay movers to reschedule
- Loss of a home if the buyer’s rental lease is over
Your lender should be knowledgeable and helpful, explaining the above questions easily.
I want you to work with a lender who will make your buying experience enjoyable!