Real estate agents, builders and mortgage lenders may use terms with which you may not be familiar, and you will be asked to provide a significant amount of personal financial information in order for a mortgage lender to determine which loan is right for you. Knowing the right questions to ask your mortgage lender will ease the stress, and it may also save you time and money.
What is the interest rate and annual percentage rate (APR) on this mortgage?
To know exactly what you will be paying in interest over the life of the loan, you need to know these rates. These are two of the important figures to obtain.
Will I have to pay origination fees (points) to get the loan at this rate?
A “point” is equal to 1 percent of the original loan amount. For example, a one point charge on a $100,000 loan equals $1,000. Lenders can charge discount points that act to lower, or “buy down” your interest rate and origination points that serve as compensation to the lender for making you a loan, or “originating” your loan. Find out how many points you will be expected to pay for the loan, which kind of points they will be, and whether they’ll be included in your loan amount or if you’ll be expected to pay cash up front.
NOTE: MFA does not allow lenders to charge any discount points on MFA loans, and the origination fee is limited to one-half of 1 percent.
What closing costs will be charged on this loan, and how will I know the total amount of closing costs I will pay?
Mortgages come with legitimate fees for various services that lenders and other parties involved in the transaction provide. Early on in the process, you will need to find out what you will be charged. The federal laws governing real estate loan transactions require that you are given certain cost estimates in writing at the time of loan application, which is called a "loan estimate." If your lender doesn’t volunteer the information, be sure to ask. If your lender is reluctant to provide information or clear answers to your questions, you may be better off shopping for a different lender.
NOTE: MFA allows lenders to also charge reasonable and customary fees for processing, underwriting, document preparation, etc.
When can I “lock in” the interest rate, and what will it cost me to do so?
Because mortgage interest rates can fluctuate daily, you may want to ask your lender about locking a quoted rate for your mortgage. Quite often, the time period between when you first apply for a mortgage and the time you actually close can be several weeks. You may not want to risk letting the rate “float” until the closing date, because it could increase. Be sure to ask the lender if there is any fee for locking in the rate. An advantage to locking in your interest rate is that you’ll know exactly what interest rate you’ll receive at closing. The main disadvantage to locking in a rate is that if market rates decrease, then you will be locked at a higher rate than you might have been had you allowed the rate to float. Ask your lender to clearly explain your options to you.
What is the minimum down payment required for this loan?
Depending on the amount of your down payment and its relation to the price of your home, you might be charged different interest rates or quoted different loan terms. Loans made at high loan-to-value (LTV) ratios (meaning the borrower has made a small down payment) can cost more than loans with larger down payments. Nevertheless, borrowers with good credit who are willing and able to pay private mortgage insurance (PMI) can get conventional loans with down payments that are much lower than 20 percent.
What are the qualifying guidelines for this particular loan?
The qualifying guidelines can relate to your income, employment, assets, liabilities, and credit history. Some first-time homebuyer programs and government-sponsored loans have easier qualifying guidelines.
What documents do I have to provide?
You will need to provide proof of income and assets to get a mortgage loan. Find out what documents will be required in your particular situation by asking your lender. It’s a good idea to gather and organize your personal financial documents prior to beginning the loan application process. By doing so, you may prevent delays in the process later on.
How long will it take to process my application?
This varies from lender to lender. It often depends on how much business your particular lender is doing and how busy the mortgage loan industry is overall. During periods of peak activity, underwriting departments may back up, appraisals may take longer to obtain, and other bottlenecks may develop. Get a realistic estimate, and use that to figure out if it makes sense to pursue a rate lock and how long it should be.
What might delay the approval of my loan?
If you provide the lender with complete, accurate information, everything should go smoothly. However, there could be a delay if the lender discovers credit problems or if other unforeseen circumstances develop. This is why it is critical to get your credit in order.