Picking A Lender
Questions to Ask Prospective Lenders
Your selection of a lender is one of the most important decisions you'll make during the process of getting your new home. Many people mistakenly believe they can get pretty much the same loan product and service regardless of whom they choose. Nothing could be further than the truth! And selecting the wrong lender can cost you in ways you've likely never even thought of. While it's tempting to "rate shop", it's important to remember that not all rates are available to all borrowers...so you might not even be able to get the rate that's advertised...and there are components to loans that are critical for the borrower to understand that have nothing to do with rate.
When talking to a mortgage lender/banker prior to making a mortgage application, you may find it helpful to ask the following questions in order to make an informed decision.
- Are you a full time loan officer or mortgage broker?
- How long have you been doing loans full time?
- How many loans do you do in a year?
- Based on our situation, what is the best mortgage for us? Why?
- What is the most popular loan you offer? Why?
- How much time do you need to give us a firm mortgage commitment (including appraisal) and how much longer until you’re ready to close?
- What are your standard fees? What other fees might I expect to incur?
- What is the longest interest rate lock you will give at no charge? What is the cost for extending a lock-in rate?
- What if rates go down during this lock-in period…can I adjust my rate downward?
- What is the cost to lock-in an interest rate?
- Will this loan be sold on the secondary market or will it be placed in your portfolio?
- How does this affect me?
- Is there any risk of “negative amortization” with the loan products you are offering me?
- If the loan is sold on the secondary market, will ANY of my terms change?
- If private mortgage insurance (PMI or MIP) is required, at what point can it be eliminated?
- What is the procedure for eliminating private mortgage insurance?
- What is the up-front charge for private mortgage insurance and what is the renewal fee?
- Should we include it in our mortgage or pay it in advance? Why?
- What is the process we will go through, between the mortgage application and the day our home purchase closes?
- When does the mortgage servicing department pay the property taxes to insure the income tax deduction for that year? Will I receive any confirmation that my taxes & insurance have been paid?
- How many months worth of property taxes and insurance are required for the reserve account?
- If obtaining an adjustable rate mortgage, describe if, how and when the loan can be converted to a fixed rate mortgage and what charges will be involved. Will another appraisal be required?
- If obtaining an adjustable rate mortgage, what are the margin, index, and anniversary for adjusting the payments?
- Is the loan assumable? Under what conditions? For what fee? Would I get a release of liability?
- Can I pay off my loan early? Is there any pre-payment penalty? Can I pay extra on my loan? How is it applied? How should I make the payment (included with regular payment or by separate check?)
- What information must we provide to you to get our loan approved?
- When is the house payment due and when is the late fee incurred? What is the late fee?
- Do you have any concerns about our ability to get a quick loan approval?
- How long must our "Finance Contingency" be for our offer to purchase?
NOTE!!! Each credit report that is pulled for you could reduce your FICO credit score, particularly if credit is pulled over a greater period of time, since the credit bureaus consider a longer timeframe an indication that the borrower was not likely just "shopping around for the best rates". This includes almost any application for credit, even rentals and cell phone applications. If you plan to shop lenders, have your credit checked by one lender, then simply provide a copy to the others. If you eventually choose a different lender, they will have to run their own credit report.
What factors can influence or limit the loans available to a particular borrower? Just to name a few:
- Borrower's credit history and rating
- Type of income (salaried, hourly, commission, alimony/child support, etc.)
- How long has the borrower been at their current job
- How much is their down-payment
- What is the source of their down-payment (their own savings, gift from family, etc.)
What components to some loans might you want to avoid? These are among the top questions to ask:
- Does the loan you're considering have a prepayment penalty - In other words, are there financial penalties for things like making additional payments each month to reduce your principle balance or for refinancing your current mortgage or even for selling your home before a certain time? Bear in mind that such penalties can be substantial, so it's very important that you find out whether the loan you're interested in includes them BEFORE you agree to that loan. Most loans DO NOT have prepayment penalties, but it's very important that you ask your lender whether the loan you're considering does, just in case.
- Does the loan have any Negative amortization (though it may be called something different) This is when the payment you make is not enough to pay the actual amount due each month, so the difference is added to the balance on your loan. You could wind up making payments on your loan for many years, only to discover that you then owe more on the loan than you borrowed in the first place...sometimes significantly more!
- Are there Interest Rate or Payment Adjustments - While these might be okay for some people in some situations (for instance, someone who had been guaranteed an increase in income that would offset any increase in payment that an adjustable rate mortgage would entail), exercise great care when considering ANY product other than the basic fixed rate mortgage where you are comfortable and qualified for the payment the loan would entail. Your lender or Realtor can, and should, show you exactly how any change in your interest rate or payment would impact your monthly payment, and this should be done before you agree to such a loan.
As with anything we don't do often, knowing the right questions to ask to protect our interests is generally a challenge. Sometimes we simply don't have enough information to even know which questions are the important ones to ask. Before committing yourself to a lender (let alone a loan!), take the time to find a quality lender. Ask for recommendations...lenders that have well-served people you know and trust in the recent past. Your agent will also have a list of quality lenders that have served their other clients well.
Looking for a quality lender who will treat you honestly and fairly, guide you towards the best loan program/s given your financial qualifications and needs, and offer competitive rates? Fill out the request below.