Questions to Ask Your Lender

Before you settle on the house of your dreams, it’s essential to find the right lender. Knowing how much home you can afford before you start searching will help the home buying process go that much smoother. The right lender also can help you determine what mortgage works best with your financial situation. Here are a few questions you should ask potential lenders before making your final selection.

What is the Interest Rate & Annual Percentage Rate?
The annual percentage rate (APR) is determined by a complex calculation that includes the interest rate and all the related lender fees divided by the loan's term. Keep in mind however that there is no way to accurately compute an APR for an adjustable loan, and APR doesn’t account for early payoffs. If you decide on an adjustable rate, investigate how often it can change, and if it has a maximum annual adjustment.

What are all the costs?
Costs can include the appraisal, credit report, lender's title policy, pest inspection reports, taxes, and more. Find out about all these costs before finalizing a loan. Lenders must provide a written good faith estimate of closing costs within three days of receiving a loan application.

Which type of loan is best?
The right lender will ask a lot of questions about you and your financial situation before suggesting loan options. You will want to know the pros and cons of fixed-rate loans, adjustable-rate loans, interest-only loans, negative-amortization loans, and others.  

How many discount and origination points will I pay?
When people want to find out how much their mortgages cost, lenders often give them quotes that include both loan rates and "points." Points “buy down” the interest rate of a loan. Therefore, the more points you pay, the lower the interest rate, and vice versa. Each point is equal to one percent of the loan amount. So, two points on a $100,000 loan costs $2,000. Discount points are tax deductible, and are actually prepaid interest on the mortgage loan. Origination points are charged by the lender to cover the costs of making the loan. The origination fee is deductible if it was used to obtain the mortgage and not to pay other closing costs.

Is there a prepayment penalty on this loan?
Find out upfront if your mortgage carries a penalty for paying off the loan before the end of the time period. Some lenders offer lower interest rates to buyers who accept prepayment penalties.

Do you offer loan rate locks?
Interest can change from the day you apply for a loan to when you close it. If you think interest rates are moving up, you can lock your loan rate. If you do end up locking your loan rate, make sure to get the details in writing including how long you are locked in for.

How long will the loan approval process take?
In most cases, it takes between 21 and 60 days. Ask your lender what the anticipated turnaround time is and what possible obstacles could delay that. You’ll need to coordinate with your lender to determine the closing date for any purchase contract.