Questions To Ask Your Mortgage Lender
A house will probably be your most expensive purchase, so you will want to be sure that it is an asset and not a liability. Obtaining the right mortgage will be a deciding factor. That's because undisclosed fees or higher-than-expected interest rates can be unpleasant financial surprises, while unexpected delays in the mortgage process will make it difficult to plan your departure from your current residence.
However, if you have thoroughly queried your mortgage lender to gain an understanding of the lending process, you can proceed with confidence, knowing that you are making the right choice. To assist in your decision-making efforts, here are seven essential questions to ask your mortgage lender or broker:
Essential Question #1: Are you licensed by the state?
Do not assume that your mortgage lender or broker is licensed. You need to ask – and then ask for proof. According to Max Austin, a mortgage broker and wholesale account executive at New South Mortgage in Birmingham, Alabama, the lender or broker should be licensed in every state in which they conduct business. For example, Austin says, “to be licensed in the State of Alabama, an individual needs to pass a national exam, background check, credit check and pre-license education” as a part of the SAFE Mortgage Licensing Act of 2008, a federal law applicable in every state in the country. So there should never be a reason why a lender or broker cannot prove they are licensed.
Essential Question #2: Are you giving me the lowest rate possible?
A lower interest rate translates into a lower monthly mortgage payment; so naturally, a higher rate means a higher monthly payment. Since obtaining the best interest rate is so important, Carrie Ramirez, branch manager at Castle and Cooke Mortgage in San Antonio, Texas, advises consumers to do their homework. In addition to asking the lender if it is the lowest rate, Ramirez says, “with today’s technology, you should search interest rates online and see if they are close to what you’re being offered.”
However, keep in mind the interest rate that a consumer is offered may be dependent on several factors, so two people with the same income who are purchasing a house at the same price may be offered significantly different rates. “The difference in rates is based on your credit and your down payment,” says Ramirez. “No two borrowers have the exact same financial information, and this accounts for the different rates.”
Essential Question # 3: As a mortgage broker or banker, how much money would you be paid?
Many consumers mistakenly think that their only expense is the purchase price of the home. However, the mortgage broker or banker must also be paid for their services. For mortgage brokers, who serve as middlemen to find loans for the consumer, it should be a set percentage, which according to Austin, is based on the loan amount borrowed. “Regardless of the loan program or interest rate, mortgage brokers should be paid the same percentage,” he says. This amount is usually one-to-two percent of the total price of the mortgage, according to Realtor.com.
In addition to the fees that mortgage bankers charge for their services, they also charge processing fees, application fees and document preparation fees, according to the Ohio Department of Commerce’s Office of Consumer Affairs. Many of these fees can be negotiated, but it is important to know the final price so you won’t be surprised at closing.
Essential Question #4: What other costs besides your fees will be associated with this loan?
In addition to mortgage broker or banker fees, there are numerous other fees involved in the mortgage process, and it is best to know these in advance so you won’t be overwhelmed.
For example, in addition to an application fee, which is paid when you apply for a loan, an appraisal fee is charged for evaluating the value of the property that you intend to purchase. A credit-reporting fee is charged to analyze your financial history to determine your credit worthiness, according to New York's Better Business Bureau. In addition, New York’s BBB notes that there is a commitment fee, which accompanies the loan commitment letter that the borrower must sign. Additionally, a lock-in fee may be charged to secure a certain interest rate; there is more information on this fee below.
But we’re not through yet. The Ohio Department of Commerce’s Office of Consumer Affairs reports that there may be upfront “points” to pay to lower the interest rate. Austin explains, “typically a borrower is quoted a ‘par rate.’ If they want a lower rate, they must pay fees up front to obtain – or ‘buy down’ the rate.” As a general rule, one point is equivalent to 1% of the mortgage loan amount.
The Department of Commerce also reports that there may be charges from the title company, which may include fees for a title search, title insurance, and fees from the attorney.
Essential Question #5: How long will it take to process my loan application and what might delay it?
This is an important question because the longer it takes to process your application, the greater the chance that the desired house may be sold to someone else who is already approved and ready to complete the purchase.
So what can you do to help prevent this? The mortgage banker should work diligently to expedite the process, which Ramirez says, can take less than two weeks, “if a borrower supplies all the correct documentation from the beginning and there are no surprises.” However, she notes that incomplete data will put the loan approval on hold. For example, the borrower may have supplied the requested bank statements, but if the statements do not include the bank’s name, or the deposits do not list the source of payment, the information cannot be verified and the process can come to a grinding halt.
Essential Question #6: Can I lock in my interest rate and if so, how much would it cost?
If you are offered a low interest rate, it is important to lock-it-in, so it won’t rise before you close on the house. According to Austin, as soon as “the loan application is in the system, and the credit scores and a property address have been determined,” the lender should be able to lock in the rate. However, if borrowers do not find a house immediately and need to lock in their rates for longer than 60 days, an upfront fee-may be required.
However, while it is a good idea to lock in rates in case they begin to rise, be aware that the situation could be problematic if they fall. The Ohio Department of Commerce’s Office of Consumer Affairs warns that if interest rates drop, “you will likely still receive the locked rate (unless you negotiate different arrangements).”
Essential Question #7: What type of documentation will I have to provide?
Knowing what type of documentation you need to have can also prevent surprises and unexpected delays. In fact, the lender can cancel the entire mortgage process if you cannot produce or verify the requested information.
The Bottom Line
You can avoid nasty surprises by making sure you know your mortgage broker’s qualifications and what is required of you, and ensuring you understand the terms and fine print regarding your mortgage.