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Questions to ask a Potential Mortgage Lender


Types of loan programs available? It is important when speaking with a lender to find out what loan products they have, if there is flexibility with down payment options. Oftentimes, lenders have programs that allow you to finance with credit scores as low as 580. This is primarily for people with derogatory items on their credit history or self-employed borrowers.
What is the rate/APR? The interest rate is the amount you pay on the loan borrowed, whereas APR is the total cost of financing all fees and closing costs. If there is a large gap between the rate and APR it is due to higher costs being rolled into your loan balance.
Monthly payment-the total payment will include your property taxes which will change year to year along with homeowner’s insurance. Lenders will account for any homeowner’s association cost when you are being qualified but you will still be paying those HOA dues on your own.
Prepayment penalty- It is very rare that loan programs have prepayment penalties but it is always important to ask especially for programs that allow lower credit rating.
What are the closing costs? It is open to ask lenders if there are any loan origination charges, most lenders charge up to 1% of your loan amount. You want to watch out for any junk fees, oftentimes there will be processing or underwriting fees in addition to rate lock charges. The good news is there are some lenders out there that will charge a deposit for your appraisal but credit that cost back to you at closing. Always ask if there are any lender credits issued back to you at closing or associated with the interest.
Close on time Guarantee? For buying a house, any guarantees offered is a great way to give you peace of mind at closing along with strengthening your offer in the seller’s eye. Of course, most lenders do not intend to pay this out so you really want to have this to guarantee the loan closes on time and eliminate any rate lock extension costs.
Will you Service or sell my loan? There are advantages if a lender services their own loans, sometimes this allows for more flexible underwriting or appraisal waivers. The downside of this is you will typically pay more in interest because the investor expects to make higher returns on your loan. Consumers are often worried if the originating party does not service the loan, however you end up saving more money long term.
Are there discount points? Discount points are the costs paid to get a lower rate and payment. One point is equivalent to one percent of your total loan amount financed. This makes sense if you want to stay in the loan long term and get a larger savings down the line. The tax credit is also a nice bonus at the end of the year. Alternatively, you can opt for a higher rate where you get a credit towards your closing costs and keep your mortgage balance low. Most lenders will quote you based on par pricing, which is the interest that comes with neither points or a lender credit.
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