10 Questions to Ask Your Mortgage Lender

It’s easy to find a mortgage broker or mortgage lender. There are literally hundreds available in each area, ready to accept your business. But separating the good offers from the bad is the hard part. To help you decide, sit down with three or more lenders or brokers and ask them the following questions:

1. Why is this type of mortgage loan best for me>

This is an important one. Many assume that the type of mortgage being offered to them is truly what’s best for their needs, but in some cases, it’s actually just the product that nets the broker or lender the most profit. Be assertive in asking why your broker or loan officer believes that a variable mortgage is better for you than a fixed-rate mortgage or why they think you should look into mortgage refinancing instead of getting a second mortgage.

2. What is the interest rate>

By law, mortgage lenders have to disclose the APR of a mortgage loan. This is for your protection ,as the APR includes not just the interest rate, but also other lender’s fees which affect the overall annual cost of the loan. However, not all mortgage lenders calculate APR the same way. For comparison shopping, you need to find out what the interest rate is so you’re not comparing apples to oranges.

3. What discount points and origination points will I pay?

Points are additional charges that are paid upfront that have little to do with closing costs and the origination fee. Discount points are used to “buy down” the interest rate and, theoretically, save you money over the long term. Origination points have no effect on your interest rate and are simply an added cost. Points are also tax deductible. Make sure you understand how many points you have to pay for and why.

4. What are the closing costs

Closing costs vary from lender-to-lender and can make up a significant portion of the overall costs. If you balk at a price and let them know your courting more competitive offers, some mortgage lenders may even cut you a deal. At the very least, knowing how much you’ll pay at closing can help you compare.

5. Will you guarantee your good faith estimate on closing costs?

Mortgage lenders are required to give you a good faith estimate on the closing costs, but they aren’t compelled by law to stick to it. Ask them if they will guarantee their good faith estimate and try to get it in writing if they will.

6. Can I lock in the interest? When and for how much?

Mortgage lenders will let you lock in a quoted interest rate between the time you apply for the loan and closing. How much you pay and for how long the rate is locked in depends on the lender.

7. Are there prepayment penalties?

Unless you are getting a very short term mortgage, you will want to leave the door open for yourself so you can refinance or sell your home. Otherwise, you may wind up paying 1 percent or more of the remaining balance as a penalty if you decide to end your mortgage 5, 10 or even 15 years into your 30-year mortgage.

8. What’s your anticipated turnaround time?

In order to write-up a purchase contract, you need an accurate estimate of how fast your lender can process your loan. Otherwise, you’ll be in breach of contract when the seller is ready to close and you are still waiting for your loan to disperse.

9. How much of a down payment should I make?

This matters. For example, if you put down less than 20 percent of the sale price, you may have to purchase private mortgage insurance. Also, if you put more money down, you may be able to lower your interest rate. Ask what the break even points are and see if it is worth it to scrounge up the extra cash.

10. When can I modify terms of the mortgage?

Some lenders are fairly lenient on making late in the game changes to your mortgage. For example, if you come up with an additional $15,000 shortly before closing, you may be able to put that towards your mortgage. Others are fairly rigid about allowing last minute adjustments and will charge fees to do so or refuse outright. Make sure you get any promises of flexibility in writing.

Conclusion

These are the questions you should begin with. If any of the answers leave you with more questions, be sure to follow up with additional queries until you fully understand the implications of your loan. The more information you have, the better decision you will be able to make.