7 Questions to Ask Your Lender Before Getting a Mortgage
Shopping around for a mortgage involves a lot more than just trying to snag the lowest interest rate. While this certainly is an important component to the mortgage shopping process, it’s only a part of the equation.
Whether you’re a seasoned veteran in the world of mortgage applications or a first-timer, there are certain key questions that you should make sure to ask your lender before you agree to a deal. Here’s a look at 7 questions to ask your mortgage lender.
1. What Type of Mortgage is Best For Me?
There are various loan programs available out there, but which type is best for you will depend on your specific circumstances. Have your lender go over the various loan types with you, and explain how each may or may not benefit you. In order for your lender to give you an accurate answer, you’ll need to provide various pieces of information about yourself, including your income, employment, assets, debt, credit, down payment, and so forth. All these pieces of financial information will be entered in your loan application.
From fixed-rate mortgages, to variable-rate mortgages, to FHA-backed loans, the type of mortgage that’s best for you can only be determined after your lender has had a chance to look over all the financial information you’ve provided.
2. What is the Annual Percentage Rate (APR)?
Many borrowers might not be aware that the posted interest rate isn’t exactly the same thing as the annual percentage rate. While interest rates are what typically gets posted to garner attention, it’s the APR that you should be asking about. While the interest rate is what’s used to calculate the monthly mortgage payments, it might not necessarily consider the entire cost to borrow.
For instance, if one lender offers a 30-year fixed-rate mortgage at 3.75% interest, while another offers the same type of mortgage for 4%, obviously the first appears to be the logical choice. But there are all sorts of other pieces to the puzzle that haven’t been considered, including origination fees, mortgage insurance, closing costs, and so forth. While the first lender may be offering the lower noted rate, the latter could wind up being the more affordable option if all the other costs associated with the mortgage package are cheaper.
3. Who Will Be Servicing My Mortgage?
The lender who originated your loan might not necessarily be the same party that you will be forwarding your mortgage payments to. While many loan originators may continue to service them, many others sell them to third party investors.
Of course, you’ll be notified if this is the case with your particular loan, as companies are legally obligated to inform you of such a situation. The mortgage servicer that your loan was sold to will be the party that you make your monthly payments to, and will also be the one to manage your escrow account. While having your loan sold to another loan servicer is nothing to be concerned about, it’s still important for you to know who will be handling your mortgage.
4. How Can I Lock Into an Interest Rate?
When a lender quotes you a specific interest rate, you should find out how you can lock into it. It’s not uncommon for borrowers to be quoted one rate, only to be given another because too much time elapsed between the quote and the actual mortgage application. That’s because the original quoted rate may have expired by then.
That’s why it’s important not to wait too long before locking in at a rate that’s considered attractive; that way, you can prevent any unpleasant surprises, and budget for your mortgage payments accordingly. Of course, the rate you lock into won’t last forever; you should ask your lender how long that rate will apply to your mortgage once you lock into it.
5. Does the Quoted Interest Rate Include Points?
A quote from a lender might not necessarily include points, which are fees a lender collects when you close on a home purchase in exchange for a lower rate. It’s important that you completely understand what the point system is and how it works, as well as whether or not using the point system will work to your benefit. If there are any confusions, be sure to ask your lender explain them.
6. What Should I Do (or Not Do) to Speed Up the Process?
Nobody wants their application process to hit snags along the way and drag on. But there are things that you might do that can actually hinder the process. Your lender will likely tell you to make sure your application is filled out in full with no errors in the information provided. You’ll also be asked to be up front about your past credit issues, and not to take on any added debt.
Buying a new car on credit, for instance, is something you should wait until after your mortgage has been approved to do. Making drastic changes to your credit while the underwriter is analyzing your financials and determining whether or not you should be approved for a mortgage can throw a wrench in the process.
7. What Are the Total Costs of My Mortgage?
In order to be able to accurately compare interest rate and expenses from different lenders, you’ll need to know exactly what all the costs are that come with the mortgage. This should be given to you through a Good Faith Estimate (GFE), which itemizes each specific cost associated with the mortgage. Once you’re ready to close on the mortgage you’ll be given a HUD-1 settlement statement that outlines all these expenses.
A home is probably the most valuable asset in your possession, so you should take the time to find out as much as you can about your loan before you close the deal.
