10 Questions to Ask a Mortgage Lender

I read this really informative brochure with some “must ask” questions if you’re thinking about getting a mortgage. The information is from the Credit Union National Association and I wanted to share some of it with you:

1. What’s the lender’s history? There are tons of places to get a mortgage these days but don’t jump at just any institution who offers you the lowest rate. It’s important to find out how long the lender has been in business and what kind of service reputation it’s established. Check if it’s registered as a financial institution in your state.
2. How much are the closing costs? When comparing lenders, remember that interest rate is only part of the mortgage cost. A major portion of the closing costs is what’s known as “points”- various one-time fees the lender charges. One point is equal to one percent of the mortgage amount. Ask if you have the option of paying fewer or no points in return for a higher interest rate on the loan. That will increase your monthly payments but require you to come up with less cash at closing if that is an issue for you. Also ask the lender for a preliminary estimate of what all your closing costs will be because points are only a part of it.
3. What other fees must I pay up front? Some lenders don’t offer you a detailed listing of all their fees right up front unless you ask, so make sure you do! If they quote an “application fee” make sure you know what that entails. Are there separate fees for obtaining your credit report and appraising the house or is that included in the application fee? A detailed statement should be sent to you after you complete your application that explains all the charges.
4. How big a down payment must I pay? The common minimum down payment today is five percent but some programs require less. Ask your lender to show you how different down payment amounts will affect the size of your payment.
5. What will private mortgage insurance cost? If you make a down payment of less than 20% of the home’s cost, your lender will require private mortgage insurance (PMI). It’s a protection for the lender in case you default on your loan. In most cases you can also drop PMI once your equity level reaches 22% of the value of your home, if you’re current on payments.
6. How much can I afford to borrow? Ask your lender for a prequalification which gives you some idea of what size mortgage you’ll be eligible for based on preliminary information you give them about income, assets, and prior debts.
7. Should I go with a fixed-rate or adjustable-rate mortgage? With a fixed-rate mortgage your interest rate stays the same throughout the life of the loan. It’s usually the best choice if you plan to stay in your house for a long time. You can ask the lender what your payment would be for different periods, such as 15, 20 or 30 years. If you expect to sell the house in a few years, an adjustable-rate mortgage (ARM) may be right. With this, the interest rate starts out lower than a fixed-rate mortgage and changes at set intervals. A few questions you’ll want to ask your lender are: How often can the ARM rate change? Can you convert the ARM to a fixed-rate mortgage later? Is there a conversion fee? How much can the rate go up?
8. Can I lock in a rate? Locking in a rate means the lender promises to hold a rate for you even if the rates climb before your application is complete. If they do allow a lock-in, ask when it takes effect and how long it lasts.
9. When is the mortgage payment due each month? Most mortgage payments are due on the first of each month, but you can check with the lender to be sure. Inquire about payment methods because some may offer a discount if you pay by automatic deduction from your account. Also find out when a payment is considered late and if there is a penalty.
10. Is there a prepayment penalty? You may want to pay off your mortgage sooner by making a bigger payment on your mortgage principal when you have extra money but find our if there’s a penalty or fee for doing so.

Abri Credit Union has a great mortgage department that can help you with any other questions you may have so feel free to contact them at 866-I-OWN-ACU.