It may seem odd that someone in the mortgage business wants to discuss how to help consumers find the best mortgage lenders. People search for mortgage providers every day without the benefit of professional help. So, I figured why not help people whether they find their way to me or someone else? Below I’ve listed the most important mortgage questions that you need to ask before you apply for a mortgage loan.
First, we should discuss the differences between a mortgage broker and a mortgage lender.
Most people think the terms are interchangeable and do not understand that there are important differences between the two. The definition of a mortgage broker according to Investopedia is:
“An intermediary who brings mortgage borrowers and mortgage lenders together, but does not use its own funds to originate mortgages. A mortgage broker gathers paperwork from a borrower, and passes that paperwork along to a mortgage lender for underwriting and approval.”
Investopedia says a mortgage lender (also called a mortgage banker) is:
“A company, individual or institution that originates mortgages. Mortgage bankers use their own funds, or funds borrowed from a warehouse lender, to fund mortgages. After a mortgage is originated, a mortgage banker might retain the mortgage in portfolio, or they might sell the mortgage to an investor. Additionally, after a mortgage is originated, a mortgage banker might service the mortgage, or they might sell the servicing rights to another financial institution. A mortgage banker’s primary business is to earn the fees associated with loan origination. Most mortgage bankers do not retain the mortgage in portfolio.”
In summary, mortgage lenders have more control over the workflow and the turnaround times of a mortgage application than a mortgage broker. Controlling the file, workflow, and turnaround times are all critical in the mortgage qualification process which has become increasingly complicated and highly regulated.
Here are the top 15 questions to ask your mortgage lender or broker before you sign a loan agreement. Be aware of these mortgage best practices before choosing a mortgage lender or mortgage broker in your area. Ask these mortgage questions to set yourself up for home-buying success.
1. What is the interest rate?
This is the obvious one. The consumer needs to know the price of something as a measure. Price is not the only measure but it ends up being what most consumers focus on solely. Unfortunately, the lowest price can mean poor execution or poor customer service. The lowest price does not equal the best value. For more on this click here.
2. What lender fees are associated with getting the mortgage?
Lenders need to make a buck somehow. If a lender is upfront about their fees, you can rest-assured there will be no surprises along the way.
3. Are there any prepayment penalties?
It’s very important for you to know if you are allowed to prepay on your mortgage each year. Especially if you want to get out of debt early. The bank or mortgage lender should be knowledgeable of any prepayment penalties.
4. Are there any discount points being charged?
What are discount points on your mortgage loan, you ask? Read this informative article If you would like to lower your interest rate on your mortgage. You can prepay a specific amount of discount points. Consider this option if you plan on staying in your home for the majority of your payment term.
5. How many days will the interest-rate be locked in for?
A rate lock can be for a time period. For example, for 10, 15, 30, 45, or 60 days. Make sure you have ample time to complete the loan paperwork for your new home before the lock-in expires.
6. Does the interest-rate quote take into account your exact credit score, the property type, the exact sales price and loan amount, as well as the settlement date?
To properly quote an interest rate a lender or broker needs to consider the big picture of your financial situation and property details. Get this in writing and review it to make sure everything is correct.
7. How long has the mortgage loan officer been in business?
Some mortgage loan officers have been around for a long time working for different mortgage businesses and banks. Visit their LinkedIn profile to see their track record of experience in the mortgage industry.
8. Has the mortgage loan officer held any other positions in the company or industry?
If a mortgage loan officer has served in a bank or industry in various different roles, their understanding of the process may be a better fit for you.
9. How long has the mortgage company that the mortgage loan officer works for been in business?
When it comes down to dollars-and-cents we all want our loan to be backed by a reputable organization that can be trusted to be in business for years to come.
10. What steps does the loan officer and their company take to securely store your personal documents?
Online piracy, hacking, and identity theft are on the rise. Business databases are being hacked everyday. Your loan officer should at the very least provide you with a secure method of transmitting personal documents and agreements online. For example, they may provide you a link to the bank’s customer portal with secure login. Ask if all documents are automatically encrypted when uploaded to their system. I would advise against sending any personal information via your email.
11. Does the company sell your data to anyone?
12. How does the loan officer and their company ensure secure document transfer?
13. What happens to your personal documents after mortgage closing?
How long will your personal documents be stored. A bank or lender will have a policy in place on how long your documents are stored.
14. What are the company’s turnaround times for appraisal, underwriting, loan approval condition review, and overall settlement dates?
Responsiveness is a key component to getting into your new home. This depends on the lender’s time management. I highly recommend asking your lender and real estate agent what to expect before entering into the mortgage loan process. If the process is delayed you could lose the bid on the home. The mortgage lender who can expedite the mortgage process is the best chance you have to guarantee the closing for your new home.
15. How will they keep in touch with you and report status during the transaction?
Hint: “Don’t worry we’ll call you as needed” is not the right answer. Is there an automated email system? Does the lender have online status access? Would you have a weekly pre-scheduled phone call? If not, I would consider it a red flag. As a precaution, set up appointments on your phone or in your calendar to request status updates from your lender and agent throughout the mortgage loan and home buying process. The communication between you and your lender should be clear and informative every step of the way.
Here are some red flags that are important to watch out for when choosing a mortgage lender or broker:
- Right before settlement if your loan is not approved and the closing documents are not ready to be sent to the title company.
- You’ve had a tough time getting your loan officer to communicate with you throughout the transaction.
- You are not sure if your personal financial documents are secure.
Consider a 5-star reviewed mortgage lender from Yelp or Google who can shop different mortgage loan products for your best-fit options. Makr sure they are responsive with a track-record of quick turnaround times and have the references to prove it.