Getting Answers: Seven Questions for your Mortgage Lender

Mortgage rates are low, and applications are up. If you’re shopping for a mortgage, you’re entering a world where there’s a lot of information you may know little about. Don’t feel embarrassed -- information about mortgage rates and closing costs aren’t taught in school, so unless you’ve worked in the industry, it’s perfectly normal for you not to know what to look for. Remember that you’re the customer, and the mortgage lender is trying to get your business.

It is important, however, to have a list of questions when making your inquiries, so you can compare different loans. Here are the seven most important mortgage lender questions.

1. What’s the interest rate? Is it fixed or adjustable?
The first question is really two but, like love and marriage, you can’t have one without the other. The interest rate will govern the amount of your monthly payment, so you’ll want the lowest one available. Ask if the rate is fixed or adjustable. The safest bet is a fixed rate, because it will stay the same throughout the life of the loan. Adjustable-rate loans change, and are unpredictable. Find out the annual percentage rate (APR), which includes all the fees the lender will charge over the loan’s life. Finally, ask each mortgage lender if you can lower the interest rate by paying points. Each point is one percent of your loan amount.

2. Can I lock in the interest rate?
Most mortgage lenders will allow you to lock in the interest rate for a period of 30 to 60 days, which is especially important if you think rates are trending upwards. Some mortgage lenders will charge a fee for this privilege.

3. How much are the closing costs?
Your mortgage comes with a hefty price tag – closing costs. They can include fees for application, appraisals, home inspection, survey, credit report, title insurance, underwriting and processing, and attorneys. The mortgage lender must provide a Good Faith Estimate, which details all these fees, within three days of your application. During your initial call, ask if they can waive some of these fees. It never hurts to ask.

4. What will my monthly payment be?
How much will you have to pay each month? Will that amount include escrow for property taxes and homeowner’s insurance? Some lenders will let you waive escrow for a small cost. But you need to know your monthly obligation in advance to make sure it fits comfortably into your budget.

5. Is there a pre-payment penalty?
If you want to refinance or pay off your loan early, you don’t want to get charged a fee. Make sure your loan has no early pay-off penalties.

6. What’s the minimum down payment?
Most lenders require a 20 percent down payment to close; but there may be programs available that allow you to put down less.

7. How long will it take to process my loan?
When rates are low, there may be an increase in applications. There may be other delays, like waiting for an appraiser, or extra due diligence that the bank must perform in the aftermath of the mortgage crisis. Each loan officer should have a good idea how long your loan will take to close, information that’s especially crucial when deciding whether to lock in a rate.
   
These seven questions will serve as a guide when speaking to mortgage lenders. Remember that you’re the customer – and although the customer isn’t always right, she’s always vital for the lender to stay in business.