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Mortgage Broker Answers to Your Interview Questions

How to Analyze Your Mortgage Lender

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After you interview your mortgage broker or lender and ask the tough questions, what do you do with the answers? How do you know if the answers you receive are applicable to your situation? Here are the answers acceptable to most borrowers.

At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.

1. Answers to Which Type of Loan is Best

Customer with Mortgage Broker
Look at the point spread between the interest rates offered on fixed-rate mortgages versus those on adjustable-rate mortgage loans. If the difference is small, say, around .5%, you would be better off with a fixed-rate mortgage.

Interest-only loans are a popular option if you decide to stay in the property for a long period of time, more than five years. Otherwise, the property may not appreciate enough to provide you with adequate equity to sell if you choose this option for a short-term residency.

2. Answers to Interest Rate & APR

Typically, the costs of your loan over the maximum length of the loan are figured into the annual percentage rate (APR). If a lender advertises an APR identical to the interest rate, you are paying a higher interest rate than the market will bear.

APR rates are higher than interest rates because they include costs. If you see a significant spread between the APR and interest rate, you are being charged too much for the loan. Normal spreads for a loan at par (zero points) are generally less than .5.

3. Answers to Discount / Origination Fees

If you do not plan to occupy the property for at least two to three years, do not pay points because you will probably not recoup them over the monthly payment savings.

If you do decide to pay points, figure out the difference in the monthly payment without points versus the monthly payment with points. Divide that difference into the points charged, and the answer will tell you how many months it will take before you will break even.

4. Answers to Loan Costs

All mortgage loans cost money. If you are not paying the costs upfront, they are rolled into your loan, making your loan balance larger. There is no such animal as a no-cost mortgage, except maybe a loan from the Bank of Mom and Dad.

Ask for an explanation of each fee. Some fees are "garbage fees," and a way for the lender to make extra money. You can negotiate those fees or persuade a lender to waive them if you threaten to take your business elsewhere.

5. Answers to GFE Guarantee

Some lenders do not guarantee a Good Faith Estimate (GFE) because they will say the costs could change depending on whom you select for third-party services such as title, escrow, etc. Which is true, in part. But you can ask them to guarantee everything BUT your third-party fees.

Moreover, changes to RESPA require mortgage brokers to guarantee the Good Faith Estimate. If fees vary more than a certain percentage at closing, the lender eats the difference.

6. Answers to Loan Rate Locks

Most lenders will not charge a fee for a 30-day loan lock. Some will lock your loan even if you haven't yet found a property to purchase, but typically lenders will want you to give them a property address to lock your rate.

Get the rate lock in writing. Although you are not obligated to use the lender if interest rates fall, generally a lender will lower the rate at that point in exchange for keeping you as a customer. However, if rates go up, you are protected against a rate increase. In most instances, it's a good idea to lock your loan.

7. Answers to Prepayment Penalties

There are two types of prepayment penalties: soft and hard. Soft prepays mean you cannot refinance the property without paying a penalty -- generally six-months of interest -- to the lender. But you can sell without a prepay.

Hard prepayment penalties do not allow you to sell or refinance without paying a penalty for a certain period of time. Unless you are certain you will not move and rates will not drop during that time, do not accept a loan with a prepayment penalty.

8. Answers to In-House Funding

While I am not suggesting that lenders who do not underwrite their own loans in-house should be avoided -- which is far from the truth -- there is a distinct advantage to using a lender who does. The reason is the lender's loan officers are familiar with their own underwriting guidelines and are likely to package a loan that will pass underwriting without any conditions or surprises.

Moreover, some lenders approve borrowers based on running the loan application and verifications through an automated software process, which gives borrowers peace of mind, especially if ratios are tight.

9. Answers to Funding Time Frame

Agents like to think they pick the date to close, but in reality, it is the lender's call. Before you write an offer to buy a home, coordinate the closing time with your lender. Know that funds from you will need to be delivered a few days before closing.

To prevent problems at closing, try to use a lender who can fund and turnaround your loan within 24 to 48 hours after receipt of signed loan documents.

10. Answers to Guarantee On-Time Closing

Timing is everything when it comes to closing. If your closing is delayed, it could trigger a chain reaction. Possibly the seller can't close on the home the seller is trying to buy, and that seller can't close on her home, either. Inconvenience carries a big price tag and some lenders will pay it or at least guarantee an on-time closing.

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At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.

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