1. Which Type of Loan is Best?
Reputable lenders will find out more about you before throwing out loan options. You wouldn't expect a doctor to suggest surgery before she assessed your medical situation, would you? Choose a lender who gathers enough information from you before she suggests a certain type of loan. Don't be afraid to ask a lender to explain the pros and cons about:
2. What is the Interest Rate & Annual Percentage Rate
The annual percentage rate (APR) is derived by a complex calculation that includes the interest rate and all the other related lender fees divided by the loan's term. However, bear in mind that:
- Some lenders do not compute APR correctly.
- There is no way to accurately compute an APR rate for an adjustable loan.
- An APR does not account for early payoffs.
3. What are the Discount Points and Origination Fees?
Each "point" is equal to 1 percent of the loan amount. Therefore, 2 points on a $100,000 loan cost $2,000.
- Sometimes lenders charge origination fees in addition to points.
- Points "buy down" the interest rate, meaning the more points you pay, the lower the interest rate.
- Points are also tax deductible, even if the seller pays some or all of the points.
4. What Are All the Costs?
All the costs of a loan include not only fees that go into the lender's pocket but also related third-party vendor fees such as:
- Credit report
- Lender's title policy
- Pest inspection reports
- Escrow (where applicable)
- Recording fees
5. Will the Lender Guarantee the GFE?
According to the Real Estate Settlement and Procedures Act (RESPA), lenders have three days after you've applied for a loan to give you the Good Faith Estimate, containing all the costs of your loan. Points to consider:
- Since lenders are not required to guarantee GFEs, this document is worth about the cost of the paper on which it is printed.
- However, there is a lot of pressure on lenders by consumers to guarantee their GFEs.
- If your lender refuses to stand behind its estimate, go elsewhere.
6. Do You Offer Loan Rate Locks?
Interest rates fluctuate and change daily. If you have reason to believe that interest rates are moving up, you might want to lock your loan. Lenders typically charge zero to one point to lock a loan rate and points. Ask your lender:
- Do you charge a fee to lock my interest rate?
- Does the lock-in protect all the loan costs?
- For how long will you lock this rate?
- Will you give me the loan lock in writing?
7. Is There a Prepayment Penalty?
In some states, prepayment penalties are no longer allowed, so ask. Typically, prepayment penalties let the lender collect an additional six months of "unearned interest" if you pay the loan off early through a refinance of sale of the property. Be sure to ask:
- How much is the prepayment penalty?
- What are the terms of the prepay? Some are in effect only during the first 2 to 5 years of the loan.
- Would the prepayment penalty apply if I refinanced through you at a later date?
8. Are You Equipped to Approve Loans In-House?
Underwriters review loans and issue conditions before approving or rejecting a loan.
9. How Much Time Do You Need to Fund?
Average loan processing time periods fall between 21 and 45 days. To properly write a purchase contract, you will need to include a closing date, and that date should be coordinated with your lender. Find out:
- What is your anticipated turnaround time?
- What obstacles could possibly hold up closing?
- How long after final application approval will the loan fund?
10. Do You Guarantee On-Time Closings?
A big issue is closing your transaction on time. Your purchase contract will contain a date to close escrow, but that date is generally subject to the lender's ability to close on time. If the lender cannot close on time, that could mean extra costs or problems for the buyer such as:
- Increase of interest rate if the lock expires
- Additional expenses to pay movers to reschedule
- Loss of a home if the buyer's rental lease is over.
Go to PAGE TWO: Answers to Mortgage Broker Questions
At the time of writing, Elizabeth Weintraub, BRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.