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-assure there will be no surprises along the way of paying off your mortgage.
3. Are there any prepayment penalties?
I really like how TheTruthAboutMortgage.com defines the prepayment penalty. It’s very important for you to know the percent you are allowed to prepay on your mortgage payment each year, especially if you want to get out of debt early. The bank or mortgage lender is knowledgeable of any prepayment penalties or allowances.
4. Are there any discount points being charged?
What are discount points on your mortgage loan you ask? Read this informative blog by Bankrate.com If you would like to lower your interest rate on your mortgage, you can prepay a specific amount according to the allowable 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 of 10, 15, 30, 45, or 60 days. Usually it is best to consider the longer time period. This will give you ample time to complete the loan paperwork for your new home before the market rate changes.
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 access 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. I have seen loans
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 and knowledge of which mortgage loans would be a good fit for you are that much greater.
9. How long has the mortgage company that the mortgage loan officer works for been in business?
New fads of online mortgage banks and businesses are on the rise, though 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. If your mortgage lender goes bankrupt or out-of-business, your loan agreement will still be valid but it will be sold or acquired by another bank or institution.
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 using the last four digits of your social security number. Ask if all documents are automatically encrypted when uploaded to their system. I would advise against sending any personal information from your personal email.
11. Does the company sell your data to anyone?
12. How does the loan officer and their company ensure secure document transfer?
Nothing beats handing off documents in-person, whether they be hard or soft copies on a thumb drive or USB. Drop it by the loan office or bank. If that isn’t an option, there are some reputable online file sharing services out there. Take the extra precaution of encrypting your own documents with a password using Microsoft Word and Adobe Reader.
13. What happens to your personal documents after mortgage closing?
How long will your personal documents be stored and where is important information for you to know. 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, and this completely 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 you are already in process and it’s not happening within a 5-7 day turnaround, contact your lender or attorney. 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? Is there online status access? Is there 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.
No matter how good the mortgage price that you shopped for is, if this is your scenario I advise extreme caution. Instead consider a 5-star reviewed mortgage lender on Yelp who can shop different mortgage loan products for your best-fit options, who is responsive with a track-record of quick turnaround times and has the references to prove it.