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Questions to Ask: When Shopping for a Mortgage

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Applying for a mortgage has become a lot safer than it used to be thanks to consumer protections instituted after the Great Recession. But a mortgage is still a long-term commitment, so it’s crucial to understand the person you’re working with to get the mortgage, what you’re getting, and what you’ll pay.

Here are important questions to ask potential mortgage lenders and the lender you end up choosing…

  • My credit score is [number]and I’m looking for [this type of mortgage]. What’s the best rate you can offer? When you have your first conversation with a mortgage broker or lender, you should already have a sense of the kind of loan you’re looking for, such as a 30-year fixed-rate loan or an adjustable-rate loan. It’s better to walk in with a specific request in mind because loan providers are motivated to sell you something, even if it’s not the best solution for your situation. If the lender has a different proposal for you, you of course can hear it out—but you’ll start the conversation on your terms.

There are various types of credit scores, but the one most often used by mortgage lenders is the FICO score, which is created by an analytics company called FICO using your credit information from the three major credit bureaus—Experian, TransUnion and Equifax. You can purchase a FICO score for $19.95 at MyFICO.com. (Editor’s note: Buying your credit score at MyFICO will sign you up for a credit-monitoring service. If you do not cancel the subscription, you will be charged $19.95 a month.)

  • Will you provide a loan disclosure estimate before I apply? Mortgage lenders are required to provide you with a standardized, “good faith” estimate that spells out your loan amount, interest rate and monthly costs—but only after you’ve applied for a loan. Better: Ask any potential lender to provide an informal estimate in writing before you apply so you can comparison shop. Make sure the estimate includes a fee breakdown that includes both origination fees and third-party fees for things like appraisals. These fees total roughly $2,000 on average, but you can check Bankrate.com to compare the lender’s estimate against the average fees for your state. Lenders are not mandated to provide an informal estimate, so unwillingness to do so is not necessarily a deal-breaker. But if a lender does provide you with an estimate, consider it a point in their favor as you’re weighing your options.
  • How long is it taking to close loans like mine? Closing a loan is a complicated process that generally takes between 45 and 50 days, but the timeline can vary significantly depending on both the lender and the loan. If your lender says your loan might take longer than average, it will affect how long you’ll need to lock in an interest rate.
  • When can I lock in the interest rate, and for how long? The interest rate you apply for is not always the rate you get. Rates may rise during the closing process, which could add thousands of dollars to your payments over time. To prevent this, ask to lock in your interest rate for longer than you expect closing to take. Some lenders don’t charge for rate locks under 60 days. Longer-term locks may cost a few hundred dollars.
  • What would my cash to close requirement be? Some borrowers focus so much on the interest rate and monthly mortgage payment that they neglect to consider the total cost of closing. This can vary according to the structure of the loan—and closing costs, which include escrow amounts for homeowner’s insurance and property taxes, may amount to as much as 6% of your total loan. Knowing how much you’d have to pay is another way to make sure you are choosing a loan that is suitable for you.
  • What documents will I need to qualify—and will those documents need to be updated during the process? To qualify for a loan, you’ll need documentation of your income and assets. Ask your lender for a checklist of the specific documents they’ll need so you can be sure to have them on hand. You may need to provide some documents, such as pay stubs, more than once during the process. Being prepared for these updates can help expedite the application process.

QUESTIONS TO ASK THE MORTGAGE LENDER YOU USE

  • Who will be handling the loan processing, and how can I get in touch with them? Once you’ve filled out an application, you enter the processing phase, where all your relevant documents are reviewed and verified prior to approval. It’s a good idea to know who will be handling the processing and how to reach them in case you have questions.
  • When can we discuss any discrepancies between the original loan disclosure estimate and the closing disclosure? Your lender is required to provide you with a closing disclosure form three days before your closing settlement meeting. Make sure there’s time in the process for you to compare it to the estimate the lender provided during the application process so you can discuss any surprises—for example, a higher interest rate or additional closing costs. It’s common for some fees, such as the charge for a home appraisal, to vary up to 10% between the estimate and final disclosure, but if there’s a larger discrepancy, you’ll want to know why.
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Source: Keith Gumbinger, vice president of HSH.com, a mortgage-information website. Date: June 8, 2017
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