It pays to ask a lot of questions

There’s a lot to consider when you buy or refinance a home.

From loan types to mortgage rates, points, and closing costs — it can be tough to keep everything straight.

That’s why it’s important to ask your lender the right questions.

With a little savvy, you can make sure you fully understand your mortgage loan and terms.

And, you can suss out whether you’re being offered a truly great deal or just a low rate — which are two very different things.

Find the best mortgage for you (Oct 20th, 2020)

16 questions to ask a mortgage lender

1. What types of mortgage loans do you offer?

There are two main categories of mortgage loans: conventional and government-backed.

The right type of loan for you depends on many different factors — including your income, down payment, home price, credit score, and more.

You might even need a specialized home loan if you have unique circumstances.

For instance, there are loan types that cater to low-credit or low-income buyers, contract and self-employed workers, people without a two-year employment history, and so on.

Your lender should be able to explain the different requirements for each loan, which one is best for you, and why.

Find the right loan type for you (Oct 20th, 2020)

2. What mortgage loans do I qualify for? Are there any you don’t offer that I might want?

Each lender can choose which mortgages it will or won’t offer.

Therefore, it’s important to find out whether the lender you’re considering offers the right type of mortgage for your needs.

For example, VA loans are among the best loans available. However, not all lenders can offer VA loans.

The same applies to other types of mortgage products such as USDA loans, jumbo loans, bank statement loans, and specialty loans like teacher or doctor mortgages.

Don’t assume your lender can offer the best loan for you. Do a little research on your own, and ask your lender.

3. Can you walk me through my Loan Estimate? 

The Loan Estimate (LE) is a three-page document that provides you with important information; including the interest rate, monthly payment, and total closing costs for your proposed loan.

Loan estimates replaced the Good Faith Estimate (GFE) in 2015.

While the LE is generally easier to follow than the former GFE, you’ll still want your lender to help you understand the information provided on this form.

The numbers you’ll see on your LE are crucial for comparing loan offers and finding the best overall deal for your mortgage.

4. Does your interest rate include loan discount points?

Mortgage discount points are available to homeowners who want to pay an upfront fee in order to obtain a lower interest rate.

Discount points are not mandatory, however. Sometimes, the lowest rate being offered isn’t the best deal if you have to pay a lot out of pocket to get it.

Consider: If you only plan to stay in the house a few years, the amount you spend on points could be more than you’ll save by lowering your interest rate.

On the other hand, if you plan to keep your mortgage for decades, paying discount points could be well worth the cost.

Ask your lender to explain loan discount points in detail and how your total loan costs would compare with and without them.

5. Do you charge an application fee, credit report fee, or any other upfront fees? 

Some lenders charge application fees. Application fees are meant to cover the cost of processing your request for a new loan and typically include costs such as credit checks and administrative expenses.

The application fee varies depending on the lender and the amount of work it takes to process your loan application. Some lenders charge no fee at all.

In fact, application fees are illegal in many states.

Nonetheless, ask about these costs before applying so you can be sure there won’t be any surprise charges.

If you’re in the shopping-around phase, or simply checking on whether you’d qualify for a loan at all, it may be best to request info from a lender with no application fees.

Verify your mortgage eligibility (Oct 20th, 2020)

6. What costs or fees will I be required to pay prior to closing?

There may be costs you’ll need to cover closing day. Make sure you know about these so that you have the cash on hand and ready to go.

For instance, most lenders will require that you pay for your appraisal at the time of service. Since your appraisal is one of the first things required when applying for a mortgage, this fee is typically paid soon after the loan application has been completed.

Your lender should be able to provide any other fees you may have to pay prior to closing.

7. Do you charge for a rate lock? 

A mortgage rate lock is an agreement between you and your lender that the interest rate will stay the same until closing, regardless of market fluctuations.

Understanding your rate lock is important because it keeps your payment and loan costs predictable.

Many lenders offer rate locks for 30 or 60 days at no charge. Some lenders charge for an extended lock period.

8. Do you have an interest rate “float down” option?  

The mortgage rate float down option allows borrowers to lock in their mortgage rate with a caveat: if rates fall during the underwriting process, you can opt to lower yours.

Be sure to inquire about float down options, as not all lenders offer them. Others may offer them but with different criteria to qualify.

Having a float down option can be especially useful in a market where rates are falling and seem likely to go significantly lower before your loan closes.

9. How long will it take to get my loan from application to closing?

This question is important for a couple of reasons.

First, if your lender is quoting a rate that is good for 30 days, but they need 45 days to get your loan closed, you’ll want to understand how this may affect you.

This applies to purchase as well as refinance loans.

Another important reason for this question is that we are in a hot real estate market, where homes for sale are getting multiple offers.

Your offer may not be as competitive if your lender needs a longer period of time to get your loan closed.

Closing times can vary quite a lot depending on how busy a lender is at the time you apply. Knowing how long it will take to close can help you find the best lender for your needs.

10. Will I be required to pay rate lock extension fees?

Rate locks for a traditional 30-year mortgage are typically good for 30 or 45 days, though some lenders will go up to 60 days.

If your rate lock needs to be extended beyond that, charges may be passed along to you.

Since extension fees can be as high as 1% of your total loan amount, you’ll want to understand who is responsible for the extra fees associated with extending your lock.

11. Do you have any mortgage options where I can avoid paying PMI?

Mortgage insurance (sometimes called PMI) is meant to protect the lender in case of borrower default. It’s required on most loans where the homebuyer puts less than 20% down.

Having to pay for mortgage insurance can be a sticking point for many homeowners. It often costs a couple hundred dollars per month on top of your mortgage bill.

Fortunately, many lenders have special loan programs without a monthly mortgage insurance fee, even with less than 20% down.

Ask your lender for more details. If it doesn’t offer a no-PMI loan, shop around for a lender that does.

Find out if you qualify for a no-PMI mortgage (Oct 20th, 2020)

12. Will I be able to cancel mortgage insurance later on? 

If paying for mortgage insurance is one of your main concerns, you’ll want to ask about how it works with each loan type.

Some mortgage loan products, notably the FHA loan, come with mortgage insurance regardless of the down payment. This can’t be canceled unless you refinance to a different loan later on.

With conventional loans, mortgage insurance is meant to drop off after a certain amount of time has passed, or the loan balance is paid down to a certain percentage.

Your lender can give you basic guidelines about when you may be able to cancel your mortgage insurance.

However, your servicer three or five years down the road will likely be a different company than your originating lender. Your eventual servicer will be the one that decides how when you can cancel PMI.

13. Do your loans have any prepayment penalties?

A mortgage prepayment penalty is a fee that some lenders charge when you pay all or part of your mortgage loan off early. It may apply if you ever decide to refinance for a lower rate.

The penalty fee is an incentive for borrowers to pay back their principal slowly over a full term, allowing mortgage lenders to collect more interest.

While lenders cannot charge early payoff penalties on FHA, VA, or USDA loans, other loan types may have them.

14. How often should I expect to receive updates about my loan process? And from whom?

Poor communication from your lender can make the process more stressful than it already is.

Most lenders have some sort of follow-up method for mortgage borrowers. Be sure to ask about this so that you and your lender have the same expectations.

Some lenders offer online status dashboards where you can see your loan’s progress. If you’re a worrier, go with a lender that offers on-demand updates.

15. Do you work with any down payment assistance programs?

For would-be homeowners who don’t quite have enough money saved up for their down payment, down payment assistance (DPA) can be an enormous help.

DPA programs offer grants or low-interest loans — some of which don’t have to be repaid — to help cover your down payment and/or closing costs.

Some lenders may have access to certain down payment assistance programs that others may not. And, some may have more experience working with DPA and may be able to help you through the process more seamlessly.

If you need DPA, be sure to research the options that are available in your area. Then, ask your lender about the programs they work with and whether or not you qualify.

16. Will my loan be sold after closing?  

Some homeowners are caught off guard when they find out their mortgage was sold shortly after closing.

The good news is that this is very common. Nothing will change with regard to your loan term, your rate, or your payment. The lender has simply sold the loan to generate income so it can make more mortgages.

Ask your lender for additional information on what will happen with your loan after closing.

The bottom line: The best mortgage is different for everyone

Finding the right mortgage product is a big deal.

Choosing the best loan and lender for you can mean a difference of thousands, or even tens of thousands of dollars over the life of your home loan.

So ask your lender a lot of questions before you sign.

Your loan officer will help you along the way, but only you can ensure you’ve covered all your own bases and got the best deal possible.

Verify your new rate (Oct 20th, 2020)