10 Questions to Ask the Mortgage Loan Originator
You've decided to refinance or purchase that new home and now it's time to call a bank or mortgage company to apply for a mortgage. How do you know you'll be getting the mortgage that will be the right one for you? How do you know you're dealing with a good honest person? Asking these 10 questions will separate the wheat from the chaff in a hurry!
Question 1. Will this mortgage have an application fee and if I don't get the mortgage will it be returned to me?
Application fees are not as prevalent as they used to be. Most mortgage lenders will pre-qualify you before they take your application. So, there is really no need for an application fee. You can find a mortgage company who doesn't charge this fee, so, if one company does, be sure there is a good reason for it.
Application fees sometimes include an appraisal fee. Find out about the appraisal fee, too. Your property, or potential property, will need an appraisal and somebody will have to pay for it.
Question 2. How many points will I be paying on this mortgage?
Make sure the loan originator is very upfront about this so that you can compare this mortgage with other offers. Points can be almost meaningless if you are getting a good interest rate and you will not be paying off the mortgage in full for many years.
If you will be paying off the mortgage in 2 years or less, try to get a zero point mortgage.
Question 3. Does this mortgage have a pre-payment penalty? If so, please explain all the details of it.
There are lenders, even big, big lenders who charge you extra money if you refinance with another mortgage company sooner than they would like you to. These lenders will waive this charge if you refinance with them. They call this practice "protecting their interest." I call it having you over a barrel!
With all the laws that congress passes, I don't know how this indecorous business practice goes on unabated. Imagine, you pay an upfront fee of, usually more than $5,000 in points, the larger part of your monthly payment is interest, and still they want more money from you if you decide you can get a better rate with another lender!
These lenders will want to saddle you with a pre-payment penalty if you sell your property or refinance within the first 5 years. Make sure you look around before agreeing to accept a pre-payment penalty for refinancing and never agree to a pre-payment penalty for selling your property.
Question 4. Will my mortgage rate ever change?
At this particular time in history, a fixed rate is the only way to go. A lot of lenders have programs where you will be easing in to your regular payment from an original lower payment.
If you are applying for such a mortgage, make sure you know every detail about this payment schedule. Don't agree to a payment that you may not be able to make at some time in the future.
Question 5. Is there any negative amortization involved?
This question is similar to question 4, but if you do have changing payments, you should know if your principle would be getting larger at any time during the mortgage. A negative amortization will do this, and with one, if you want to sell your property within the first few years, you will owe more than your original mortgage amount. These types of situations are what foreclosures are made of!
Question 6. Other than points, what other closing costs can I expect?
Make sure you get an accurate idea of what your closing costs will be, and let the loan originator know you are counting on him or her to be accurate.
If you are buying a property, you will have your own attorney, anyway. Still, this question will help you get more details about the mortgage.
Question 7. When would a monthly payment be considered late, and what would the late charge be?
You don't want to be filling out an application while giving the originator the idea you intend to make late payments. However, if a mistake does happen, you want to make sure you are not dealing with a lender who is ready to pounce on you with an excessive fee.
4% ought to be enough for a late charge. If you get an answer like 15%, you would be dealing with someone who is not willing to work with people.
Question 8. Do I get a discount for an automatic debit?
It's worth a try! I actually have seen advertisements from lenders who imply that if you set up an automatic debit from your checking account for your monthly payment, they will give you a slightly lower rate.
Maybe this will be the kind of question where the originator's answer will start, "well, since you asked..."
Question 9. Can I buy down the interest rate?
Buying down the interest rates means paying more points to get a lower rate. These points used to be called "discount points."
While there aren't too many of these buy down programs around anymore, this question is really just meant to start the originator thinking, "Wow, these people know more about mortgages than I do!"
Remember, the mortgage originators are salespeople. They won't mess with you after you show them you know about buy downs.
Question 10. How much escrow is the lender keeping after paying my taxes and Home Owners Insurance?
The lender usually will charge you more than your normal monthly payment each month so they can pay your taxes and Home Owner's Insurance.
Some mortgage companies misuse your mortgage account by keeping hundreds, maybe even thousands of your dollars in their escrow accounts after your taxes and insurance have been paid.
Make sure you find out how this lender treats their escrow accounts. They should have a program in place where they will send a check to you should your escrow account get above a certain amount and stay there for a certain period of time.
A lot of originators may not know the answers to all these questions. However, they certainly will know whether or not their previous customers have been happy with a particular lender. Furthermore, after you ask all these questions, they will know you've done your homework and they will realize they better level with you.