Before you choose a mortgage lender, you should ask the loan officer some specific questions to be sure you are making the right choice. There are plenty of places to get a mortgage in any major metropolitan area, and you should be confident that you are making the best choice for your home ownership dreams. Below are the key questions to ask loan officers when shopping for the best mortgage lender for your situation.
What Type of Loan Is Best for Me?
A good mortgage lender will learn all about your finances, needs and desires before giving you a loan option. Choose a mortgage lender who collects information from you before recommending a loan type. Do not be shy about asking your lender about the advantages and disadvantages of various types of loans for your specific situation, including:
- Fixed rate
- Adjustable rate
- Interest only
- Negative amortization loans
Also, you may want to ask him if you should get a conventional loan from Fannie Mae or Freddie Mac, or consider a government backed loan, such as USDA or an FHA-loan. The latter two programs are often the best option for people with past credit problems and a lower down payment. Conventional loans are the best option for most people with credit scores above 700. Ask loan officers if they have any new loan programs for first time home-buyers.
What Is the Interest Rate and the APR?
The mortgage interest rate is important because it dictates the interest that you pay over the life of the loan. But there is more to it than that. You need to understand what the annual percentage rate or APR is, too. This is a calculation that considers the interest rate and the various fees and points in the loan to arrive at a final percentage that you are really paying.
Keep in mind that some lenders do not calculate the APR properly. You should ask your lender to give you the APR for your loan up front. But if you are getting an adjustable rate loan, APR cannot be calculated. For fixed rate loans, however, APR is important, and your lender should be up front about what that number is.
Are Their Discount Points and Origination Fees?
Your lender may recommend that you pay points to lower the rate. Each point is 1% of the loan amount. So, one point on a $200,000 mortgage is $2,000. Points can be paid up front or sometimes added to the loan balance. Lenders also often charge origination fees, which is how they get paid for their services. Many lenders charge a 1-point origination fee. Check what your lender is charging. If it is more than that, you may want to shop around.
What Are All of the Closing Costs and Lending Fees?
All of the mortgage loan costs include fees that the lender receives but also many 3rd party fees:
- Credit report
- Title policy
- Pest inspection
- Recording fees
All of these various fees must be listed on the loan estimate that the lender gives you once you have a home in mind and have been pre-approved.
What Is My Loan Estimate?
Lenders must under federal law give you a loan estimate that contains all costs of the loan for the home you want to buy. They must give you this when you complete your mortgage application. These items are usually needed for you to get your loan estimate:
- Name of borrower
- Social Security number
- Property address
- Estimated value of property
- Loan amount
Should I Lock My Rate?
The thing about mortgage interest rates is they fluctuate almost every day. If you are in a rising interest rate environment, it is recommended to lock your rate at least a few weeks before you want to close. Lenders can charge anywhere from nothing to one point to lock your rate and points.
You should ask your lender if they charge a fee to lock your rate, and whether the lock covers all loan costs. Also, you must know how long it is locked and whether they give you a written guarantee of the lock. These days, rates are on the rise, so having a proper rate lock can be the difference between closing or the deal falling through. If the rates go up even a small amount, that can raise the payment enough to result in the loan being declined.
How Long Does It Take to Fund the Loan?
Typical loan processing takes 21 to 45 days, but government backed loans might take longer. To write a purchase contract and to get the deal to go through, you have to have an exact closing date. If there are delays in underwriting that are unexpected, this could cause the seller to back out of the deal.
Getting the loan completed on time is often a matter of whether the lender does their approvals in house. Ideally, the lender should be doing all of the underwriting in their own company and not having it done by an outside party. FHA and VA loans can take longer to underwrite as the process often occurs at another location.