How to Interview a Potential Lender

When it’s time to consider whether to work with a bank or a mortgage broker to obtain a loan for your new home, many people feel overwhelmed and confused. Even within a well established name in the banking and lending field, there are loan officers that are more knowledgeable than others, and provide a greater level of service and communication than their co-workers. Mortgage rules and regulations have changed recently, and you need a good, well informed loan officer to assist you. Take a few minutes to look over the following questions.  By asking your mortgage consultant to answer a few of these questions for you, you can greatly reduce the chances that you will make a critical error when you select your lender.

What will my Interest Rate and Annual Percentage Rate Be?

Keeping in mind that interest rates fluctuate, ask the lender to quote an approximate rate, based on today’s published rate. Then ask about the APR, or Annual Percentage Rate.  The APR is the interest rate, combined with points, and any other charges, divided by the loan’s term (usually 30 years) to a give an annualized rate.  Your APR will be higher than your interest rate.   Some people have chosen their lender based solely on the quoted interest rate. This is a huge and costly mistake.  Your APR is the more accurate way to shop and compare.

Do You Charge Points?

Understanding Points: Points represent the lender saying  “pay me now or pay me later”. A point is one percent of the loan amount.  If you are charged points, you should be getting a lower interest rate. You are buying down your interest rate up front.  Depending on how long you expect to live in your home, points may or may not be a good idea. Consult with your real estate and lending professional, to discuss whether you should consider paying points.

What are your Total Closing Cost Fees?

Ask your lender to “aim high”. It’s best to have the worst case scenario than be too far into the process to turn back, after learning the fees have increased.  All lenders charge fees for the services that they provide to process and close your mortgage.  Closing costs must be disclosed within 3 days of the loan application process. It is the law to protect you, the consumer. Be aware though, that some brokers will initially disclose low figures, which tempt you into working with them, only to “find” and charge higher fees closer to the date of closing.

What is the Charge to “Lock-in” My Rate?

Often you will be offered a “lock-in” policy that guarantees you a certain interest rate.  There are frequently points associated with a lock-in.  There is also a time limit associated with this lock-in.  Without a lock-in, you are agreeing to prevailing rates as your closing approaches. Since rates can change daily, sometimes within the day if the market is particularly active, this one time lock-in fee may be able to lock you into an excellent rate.

Are you a Broker or a Bank?

There is a difference.  A broker is independent and can work with a variety of lender/investors.  They generally have more opportunity to find you loan programs that fit your needs.  The fees may be slightly higher, but they do provide more loan programs and buying opportunities.  The bank may have slightly lower rates and fees, but generally provide very limited lending programs.

FHA Direct Endorsement, or VA Automatic Endorsement. Is it Available if Needed?

Automatic and direct endorsement means a lender has met the government requirements for working FHA/VA lending programs. The underwriters have completed mandatory classes.  This saves you, the borrower, time if you qualify for a VA or FHA loan.

Private Mortgage Insurance, or PMI. Can I Finance PMI into the Loan?

Your lender may allow you to finance the first year’s premium into the loan amount.  PMI will be charged if your down payment is under 20% of the sales price.  This insurance premium is to protect the lender, who is carrying the bulk of the risk on this loan, in case you or someone who assumes the loan defaults.

Can I Pay Off the Loan Early Without Penalty?

Generally, the answer will be yes. There are some exceptions.  Make sure to be certain that your lender has not placed you in a loan program with a pre-payment penalty without discussing this with you, and why your situation would call for such a clause.

How Does the Mortgage Consultant’s Resume Read? Any Referrals?

Not all mortgage consultants work the same, even within the same company. Make sure you have a “good fit” and that your consultant understands the level of communication you expect.  Does your lender have a solid reputation for processing in a timely manner? Is he knowledgeable about the lending programs currently available and the latest industry changes?  Will she return your calls within the day, or the next morning at a minimum? Maybe she can provide you with a referral or two to speak with.

Are There Any First Time Buyer Programs You Can Offer?

If you are a first time buyer, ask!  This process of buying a home is exciting, and is one of the largest, most significant financial decisions you will make.  As a first time buyer, you may have questions and concerns that need addressed.  Many lenders can provide loan programs tailored to the first time buyer.  There are some programs that may require you to take an online class…..but it’s worth the time to obtain the loan!

I hope that helped to take some of the mystery out of the process. Now that you have your lender, and your loan, give us a call!