Not all mortgage lenders are the same. If you decide to seek the help of a lender when buying a home, you need some good information before you make any moves.
Picking a lender is one of those critical issues that can cost or save you thousands of dollars. There are very specific questions you should be asking to ensure that you get the best representation for your needs. Some lenders may prefer that you don’t ask these questions, because the knowledge you’ll gain from their honest answers will give you a very good idea about what outcome you can expect from using this lender. And let’s face it – in real estate, as in life – not all things are created equal.
Hiring a mortgage lender is just like any hiring process – with you on the boss’s side of the desk. It’s critical that you make the right decision about who will handle what is probably the single largest financial investment you will ever make.
THE 10 QUESTIONS TO ASK
1. What Are the Interest Rate and Annual Percentage Rate of the Loan?
Find out what the interest rate will be on the loan as well as the annual percentage rate (APR). The APR is a combination of the interest rate, points and other charges divided by the loan’s term to give an annualized rate. It is the best way to properly compare loan costs.
2. How Many Points Will Be Charged?
A point is one percent of the loan amount. Points charged are additional to the interest rate that is charged on the loan. A loan with a low interest rate and high points may cost you thousands more than one with a higher interest rate but low points. This is important because the number of points charged varies from lender to lender.
3. What will be the Total Closing Cost Fees Charged?
Lenders charge fees for the services incurred to process and close your mortgage. By law, closing costs must be disclosed within 3 days of the loan application, however, there are different approaches to calculating them. Some brokers will initially disclose closing cost figures that are very appealing, only to provide much higher costs as your closing date approaches.
4. Is There a “Lock-In” Policy? Is There an Additional Charge to Lock-In an Interest Rate and Discount Points?
Many lenders offer a lock-in policy that guarantees you a certain interest rate and points for a specified number of days. The alternative to this is accepting the prevailing rate and points on your closing day. Since rates can change daily, the one time lock-in fee may be able to save you thousands.
5. How Long Does it Take to Process My Mortgage?
Processing is the means by which your loan is prepared for underwriting, or approval. The time it takes to process a loan varies by the type of loan and even among lenders. Loans can usually be funded within 7 to 10 working days. If time is of the essence, a lender with quick processing, underwriting and funding capabilities can prove to be a very valuable asset.
6. Are You a VA Automatic or FHA Direct endorsement Lender?
VA automatic and FHA direct endorsement means that a lender has met all the government requirements for FHA/VA and the lender’s underwriter has completed mandatory education requirements. An automatic or direct endorsement lender can approve or disapprove a loan just as if the loan had been sent directly to the regional FHA or VA office.
7. Can I Finance the Upfront Private Mortgage Insurance (PMI) Premium into the Loan Amount?
If your down payment is less than twenty percent of the sale price, to qualify, you will be charged PMI, an insurance premium to protect the lender in case you or someone else who assumes your loan defaults on the loan. Some lenders allow you to include the first year’s premium into the amount of the loan. Including this premium may be the difference when getting a mortgage by reducing your cash outlay.
8. Is There a Pre-Payment Penalty?
Normally you can prepay a loan without penalty if you notify the lender in writing that you are either selling or refinancing. There are however, exceptions. Make sure to ask about your mortgage, and have it configured for your unique situation.
9. What is the Lender’s Track Record?
It’s important to rate your lenders reputation for speedy processing, knowledgeable loan service and meeting contract deadlines. You want to hire a mortgage broker who will treat you the way you want to be treated and has respect for your purchase. Your lender will be dealing with your hard earned money and home purchase, so you want to be confident that you have made the correct decisions.
10. What Do You Offer to the First Time Buyer? (If applicable)
Purchasing a home is among the most significant financial commitments most people will ever make. First time buyers often have special needs and concerns. If this is you, make sure your mortgage broker provides services especially tailored for the first time buyer.
11. Who Will Service The Loan? Your Bank or Another Company?
Evaluate each agent’s responses to these 10 questions carefully and objectively. Who will do the best job for you?
These questions will help you decide.