8 questions to ask before choosing where to get a mortgage

Applying for a mortgage is not like getting a car loan or putting something on layaway where you pay for it over time. Purchasing a home, and financing it with a mortgage, is a significant step in your life. You're in it for the long haul, possibly for 15 or 30 years.

You'll be working directly with the mortgage lender you choose over the life of your loan, so when deciding on who to work with, it's good to do some research and explore all your options. 

• Do you want a lender who specializes in borrowers with low credit scores? 
• Do you want one who can get you bargain-basement rates? 
• Do you want one who services the loan post-close rather than selling the loan to a service company? 
• Or maybe you feel better working with a known brand?  

Whichever is your motivating factor, you'll want to feel comfortable with who you'll be working with, especially since this is probably not your area of expertise. 

What to ask before choosing a lender

So we've compiled 8 questions to ask mortgage loan officers before committing. Answers to these questions will put you well on your way to a better home-buying experience.

1. What's the interest rate?

Obviously, this is the thing most potential homebuyers focus on first. A lower interest rate will mean a lower monthly mortgage payment. Unfortunately, rock bottom rates can also mean cut-rate service. The lowest cost doesn't always mean it's the best value. Shop carefully and consider the lender's experience, reputation, fulfillment and turnaround times, paperwork processing, responsiveness and post-closing follow-up.

2. What fees should I expect?

If this is your first home purchase, you may be unfamiliar with the costs of buying a house. Asking the lender about their fees early on eliminates surprises later on. One-time closing costs will probably include appraisal fees, a home inspection fee, a credit report fee, a document preparation fee, a loan origination fee, title fees and taxes. Ongoing fees may include interest, property taxes, private mortgage insurance and homeowner association (HOA) fees.

3. When will I get the loan commitment letter?

When your mortgage loan is approved, you will receive a Loan Commitment Letter — a written and signed document from the lender that states that you've passed strict qualification requirements and have been approved for the loan by an underwriter. It should include the type of loan, loan amount, interest rate, APR (annual percentage rate), expected closing costs, total payment, expiration date and other conditions. It can take two or more weeks to prepare, so ask when you can expect to receive it.

4. Can I pay off the loan ahead of time?

Somewhere down the road, you may have a little extra cash to put toward your mortgage. It's not uncommon for some borrowers to pay off a bit more of their mortgage each year, but some lenders may charge a prepayment penalty fee. Note that Fannie Mae, Freddie Mac, FHA Loans, USDA Loans, VA Loans and certain states don't allow prepayment penalties. Make sure you understand your lender's policy — if they have one — before you make an extra payment to chip away at your loan. 

5. Can I buy down the interest rate?

When researching buying a home, you may come across the term “discount points” — a way to pay a bit more at closing to get a lower interest rate over the life of your loan. Paying points can sometimes bring a rate down as much as 0.25%, sometimes more. This might be a good option if the savings from lowering your interest rate outweigh the cost of paying for the points. Before deciding to go the discount points route, consider how long you plan to live in your home. Your loan officer can run the numbers for you and see if it makes sense.

6. How long can I lock in an interest rate?

It's not mandatory to lock in a rate, but like the stock market, mortgage rates fluctuate, so keep your eye on rates as you move through the mortgage process and when it feels right, go for it. Lock periods are typically for 30, 45, or 60 days. They can sometimes go longer, but 60 days gives you plenty of time to complete the paperwork and get to the closing table before the rate changes. Just note that the longer you lock the rate, the higher the risk is for the mortgage lender, so it may cost more to extend it. 

7. How do you determine my interest-rate quote?

Interest rates, just like the price of oil, can vary from day to day. Every homebuyer wants the lowest rate possible. But few realize how much control buyers have over the interest rate they get quoted. To give you a rate quote, your lender will look at your credit score, the home location (sometimes down to the street level), the home price, the down payment and the loan amount. They'll also consider the term of the loan (how long you'll take to repay it), whether it's a fixed or adjustable rate and the type of loan (conventional, FHA, USDA, Jumbo, VA loan, etc.) Don't be afraid to ask your lender to walk you through all the options available.

8. Will you safeguard my personal information?

Privacy practices vary by lender, but reputable mortgage companies will have their privacy policy published on their website. A link can usually be found at the bottom of the homepage, explaining how they handle cybersecurity and protect against data breaches. Ask how they store your information once they have it. On top of being password protected, servers and databases should utilize two-factor authentication. 

To process your application, some of your information will need to be shared with third parties, like credit bureaus, lawyers and title companies. But ask whether your customer data is used for marketing or promotional purposes and whether they sell data to credit card companies, insurance agencies, etc. If they do, opt-out.

Also, ask what happens to your documents after closing. Usually, they are stored securely. If so, ask for how long and whether you can request to have them returned or shredded. 

So what are you waiting for?

You won't be the only one asking questions, though. Once you decide on a lender, be prepared to answer inquiries about your income, your assets, where your assets come from, your job history, any gaps in employment and how much debt you have. He or she will also ask about any recent, large deposits to your bank accounts, your desired settlement date, the type of property you're looking to buy and how long you intend to stay in that property. 

Be prepared in advance with as many of these answers as possible. 

One last thing: ask about getting pre-approved before you even start house hunting. This will help eliminate any potential stress or anxiety you have with the mortgage loan process. 

So, when you're ready, please reach out to one of our local loan officers to get started.