10 questions to ask your mortgage lender

Once you have selected your lender, you need to ask him/her these 10 important questions:
1. What is the interest rate on this mortgage?
2. How many discount and origination points will I pay?
3. What are the closing costs?
4. When can I lock the interest rate and what will it cost me to do so?
5. Is there a prepayment penalty on this loan?
6. What is the minimum down payment required for this loan?
7. What are the qualifying guidelines for this loan?
8. What documents will I have to provide?
9. How long will it take to process my loan application?
10. What might delay approval of my loan?

1. What is the interest rate on this mortgage?
If you want to know exactly how much you’ll pay over the life of the loan, you need to know the rate. Rates change quickly, and unless you have stellar credit, you won’t qualify for the lowest available rates. You need get clear on the exact rate, which may be higher than what lured you in. The APR (annual percentage rate) has associated fees, that aren’t always included in lender’s advertisements. So, make sure you know the exact APR, including all of the itemized break downs.

2. How many discount and origination points will I pay?
Lenders may charge prepaid mortgage interest points to lower your interest rate or other points that have no benefit to you at all. Find out how many you’ll be expected to pay and which kind of points they will be.

3. What are the closing costs?
There are many additional fees associated with mortgage processing; which can add up to a lot. The earlier you know what your closing costs are going to be, the better you can prepare. Lenders are required to provide in writing a ‘good faith estimate’ of closing costs within three days of receiving a loan application.

4. When can I lock the interest rate and what will it cost me to do so?
Interest rates tend to fluctuate. Yours could change between the time you apply for your mortgage and when you close. Do some homework and see how the experts predict interest rates to behave. If there is concern of rates going up, you may want to lock in the rate. Ask your lender if there are any fees associated with the locking in the rate. Even a small increase in rates could mean hundreds, if not thousands more over the life of the loan; so the fee will be worth making sure you secure the lowest rate possible.

5. Is there a prepayment penalty on this loan?
A prepayment penalty is an agreement between a borrower and a bank or mortgage lender that regulates what the borrower is allowed to pay off and when. Most mortgage lenders allow borrowers to pay off up to 20 percent of the loan balance each year. However, some penalties are 1 percent of the loan amount, others are equal to six months’ interest still others kick in if you sell your home. Find out the duration of any penalty period and how the penalty is calculated. Some lenders offer lower interest rates to buyers who accept prepayment penalties.

6. What is the minimum down payment required for this loan?
Your down payment will determine the rates and terms of your loan. Homebuyers usually have a down payment of 3 percent to 20 percent. The more you have to put down, the lower your interest rate and better your terms will be. If you can’t come up with enough, you will likely be faced with PMI (private mortgage insurance).

7. What are the qualifying guidelines for this loan?
In qualifying for a loan, the following factors are taken into consideration: your income, employment, assets, liabilities and credit history. Conventional loans are more stringent with these factors. But if you’re a first-time home buyer or you qualify for a VA loan or other government-sponsored mortgage program there is a bit more wiggle room.

8. What documents will I have to provide?
Most lenders will require proof of income and assets before approving your loan, and may require other documents as well. Buyers with excellent credit may qualify for a no-documentation or “no-doc” loan, but they will have to pay a larger down payment and higher interest rate.

9. How long will it take to process my loan application?
There are several variables that determine how long the process can take. For starters, all documents and paperwork must be accurate and complete. The work load of the underwriters also plays a huge factor. The more files they have to verify, the longer it will take them to get around to yours. The process typically takes anywhere from 2 to 8 weeks.

10. What might delay approval of my loan?
If you provide the lender with complete, accurate information, the loan process should run smoothly. If the underwriter discovers credit problems, however, there could be delays. Make sure you notify your lender if you change jobs, increase or decrease your salary, incur additional debt or change marital status between the time you submit an application and the time the loan is funded.

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