Questions to Ask your Mortgage Lender

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Author: Cynthia Andrews

The absolute worst thing that you could do when dealing with a mortgage lender is to do so blindly so if you’re thinking about buying a home, you should be doing so as an informed consumer. Many times, potential home buyers will receive three or four different mortgage offers, so how do you know which is the best solution for you? Here are some key questions that you should definitely ask your mortgage lender before you sign on the dotted line.

What is the interest rate?

You need to know what the interest rate will be on your mortgage so that you know exactly how much you will be paying on the loan. The rate is an essential bit of information and you should always know this ahead of time. Remember, mortgage rates can change quite quickly (and drastically) so depending on the market and your credit history, your mortgage interest rate may vary. You’ll also want to ask about the annual percentage rate (APR), which is usually higher than the quoted rate as it includes fees.

What is the minimum down payment for my loan?

The interest rate is important to know, but it’s not the only thing to ask early on. You will also need to know what the minimum down payment for the loan is which equates to the amount of money you need to pay upfront. Usually, the down payment will range from 3-20% of the purchase price. The more money you can put down, the lower your interest rate may end up being.

What are the closing costs?

When considering a mortgage, you need to ask about the closing costs. Closing costs vary from lender to lender, so there is no way of knowing what the fees might be unless you ask. You want to know what the closing costs are as early as possible, as it will affect the amount that you end up paying. Closing costs include various fees based on what services are provided by lenders and other parties during the process. Remember, it is required that all lenders provide a good-faith estimate of closing costs (in writing) within three days of receiving an application. If you haven’t gotten that, you might want to move on to another lender.

Do I have to pay any discount or origination points? Discount and origination points are pre-paid mortgage interest points that some mortgage lenders require customers to pay upfront. These are usually of no benefit to you, but some may end up lowering your interest rate. Always ask about any such points that you may be expected to pay and find out exactly what they are for.

When can I lock the interest rate down, and does it cost anything do to so?

Because mortgage interest rates can fluctuate drastically, it is important to ask when you lock the rate down, if you have received an acceptable rate. To prevent the rate from increasing between the time you receive the rate quote and close on your home, you will want to lock the rate in. However, it is important to also ask if any fees apply to locking the rate.

Are there any pre-payment penalties on my loan?

Sometimes, there are pre-payment penalties on mortgage loans. Usually, they are about 1% of the loan amount, but other times they can be much more. Such penalties may only take effect when you refinance or reduce the principal balance by more than 20%. Others kick in only when you sell your home. Depending on the lender, such fees, if any, will vary, so always ask before you agree to the terms of the mortgage. If you accept such penalties, you may get a better interest rate.

What do I need to qualify?

It is always important to know what is required to qualify for the mortgage. In most cases, you will need to provide documentation proving your income, employment, liabilities, assets, and credit history. You may also need other documentation based on the type of loan you apply for. Always ask your mortgage lender what they will need to review and approve your application.

How long will it take to process my mortgage application?

The length of time it will take to process your mortgage application will depend on not only the market but also your lender. Sometimes, underwriters get backed up and other times lenders are waiting on verification of your documentation. Some lenders may get the application done in as little as two weeks, but in most cases, 45 days or so is more realistic. Delays may ensue if your lender has trouble verifying your information or credit problems are found.

Cynthia Andrews is a freelance writer who writes about specific topics such as how to work with a mortgage lender.