Eleven Great Questions to Ask Your Lender

People going through the process of buying a home may think the only thing they need to know about is getting the lowest rate or the best deal. If you want the lowest rate, go to the Internet, where you will find some excellent rates.  Unless you are locking in an interest rate that day, though, chances are the rate you are quoted will not be the rate when you buy. Rates are adjusted daily, and each program has add-ons.

Some people believe it will take too much time to learn how to compare mortgage interest rates but contrary to popular belief, it can be quick and easy to compare them.

As far as the best deal goes, are you investing in your family's future or buying a used car?

Everyone wants to save money, but the purpose of shopping around for mortgage rates isn’t simple. Do you want to keep payments super low, regardless of the principal you are paying off? Do you have a significant down payment and need a loan for less than thirty years? Do you expect to be able to pay the loan off early and want a penalty-free loan? Those are questions I would ask a first-time homebuyer.

Follow these steps to help ensure that you get the mortgage loan that best suits your needs.

Shop around with various mortgage lenders, like mortgage brokers (individuals and agencies that arrange financing from a variety of lenders), banks, credit unions, and online mortgage companies for rates and terms. They are going to interview you, so why not interview them? Ask what programs they have for first-time homebuyers. They should instantly bring up local, state (CHFA), and government (VA and FHA) programs, because these programs have been started for the purpose of helping the first-time homebuyer get into a home. Banks and lenders also have their own programs designed for those who don't meet the other program guidelines. These programs are usually similar in nature and competitive in rate, but each offers something a little different.

Next ask your bank or credit union what discounts or benefits they offer clients. Now take it a littler further. Ask if they offer any discounts for firemen, policemen, teachers, steelworkers, state workers, circus performers, etc. Some lenders feature benefits for people in selected occupations. Your union may offer discounted legal services that can lower closing costs for members. Banks catering to some larger corporations or institutions may offer a rate discount for employees working there. The lesson here is that if you are a first-time homebuyer, you may qualify for a lower down payment or interest rate. Check with mortgage brokers, online mortgage companies, your county housing department, your union, or your employer to see what programs are available. Just ask.

Pick the right loan for you and your family. Many loan programs are available for a wide variety of borrowers. Even though one program may be great for some borrowers, it isn’t necessarily great for everyone. Educate yourself so that the loan officer doesn't pressure you into a loan program that’s in his or her best interest and not yours.

Here are the basic questions to ask to ensure that the loan you pick will work best for you:

1. What programs do you have for first-time homebuyers?

2. Which program do you recommend, and why?

3. What is the rate? Is it fixed? For how long? Is it adjustable? When? (Something to keep in mind: When the interest rate on an adjustable-rate loan goes up, so does your payment.) How much can it go up, and how often? Is this the best possible rate based on my credit score?

4. When can I lock in a rate? For how long? Is there a fee? (A rate lock is when the lender locks-in a stated interest rate for a specific period of time, and if rates rise or go down, your rate will remain the same. Most rate locks are for sixty days.)

5. What is the minimum down payment? One of the factors determining the rate and term of your loan will be the amount of down payment. Usually it’s 0 to 20% of the selling price. If you can put more money down, you might be able to lower your rate and get better terms.

6. Is there Private Mortgage Insurance? If you’re putting less than 20% down, lenders usually require the homebuyer to purchase Private Mortgage Insurance (PMI), to protect the lender in case the homebuyer fails to pay. Again, not all mortgage insurance companies are created equal. Different companies have various rates, terms, and conditions. Ask your lender the following questions: Does your bank have any special insurance programs? What is the total cost of the insurance? How much is the monthly payment? How long will you be required to carry PMI?

7. Are there any points? Points are fees paid to the lender and are often linked to the interest rate. Usually the more points you pay, the lower the interest rate. A point is one percent (One point on $100,000 is $1,000; two points would be $2,000) . Always ask for fees and points in dollars, not percentages. A $1,000 fee is easier to comprehend than one point.

8. Is there a prepayment penalty? If there is, how long does it last, and how is the penalty calculated? When you apply for a loan, look on your Truth in Lending statement to see if there is a penalty. It’s usually at the bottom of the page.

9. What are the closing costs? There are many people involved in a mortgage transaction, such as an attorney or title company, appraiser, county recorder, processors, underwriters, and yes, your loan officer. None of these people work for free. (Do you?) Lenders make money on a loan in a number of ways, such as charging upfront fees, charging reduced fees, or offering no-cost options or a combination of rates and fees. Your loan will usually result in a higher interest rate if you do not pay these fees upfront.

10. When will I get a Good Faith Estimate? The question is when, not if. Every lender should give you an estimate of its fees IN WRITING. Many of these fees are negotiable. Some fees are paid when you apply for a loan (such as application and appraisal fees), and others are paid at closing. In some cases, you can borrow the money needed to pay these fees, but, in doing so, will increase your loan amount. Ask the purpose of each fee and what each fee includes .

11. What will my monthly payment be? Including principal, interest, taxes, homeowners insurance, condo fees, mortgage insurance, etc. What you want is the bottom line.

Other things you might want to ask include the following: When will my payments be due? Where do I send them? Will my loan be sold, and if so, how would it affect me? Do I get a copy of the appraisal?

Ask about anything you don’t understand and ask again and again, until you understand.

There are as many ways to buy a home as there are homes on the market. You have to find the program that best suits your wants and needs. All programs have their benefits and advantages, but one fact remains: IT’S YOUR MONEY. Know where it’s going.


"An investment in knowledge pays the best interest." –Ben Franklin