December 17th, 2015 5:39 AM by Jackie A. Graves, President
A house will probably be your most expensive purchase, so you will want to be
sure that it is an asset and not a liability. Obtaining the right mortgage will
be a deciding factor. That's because undisclosed fees or higher-than-expected interest rates can be unpleasant financial surprises,
while unexpected delays in the mortgage process will make it difficult to plan
your departure from your current residence.
However, if you have
thoroughly queried your mortgage lender to gain an understanding of the lending
process, you can proceed with confidence, knowing that you are making the right
choice. To assist in your decision-making efforts, here are seven essential
questions to ask your mortgage lender or broker:
Question #1: Are you licensed by the state?
Do not assume that your
mortgage lender or broker is licensed. You need to ask – and then ask for
proof. According to Max Austin, a mortgage broker and wholesale account
executive at New South Mortgage in Birmingham, Alabama, the lender or broker
should be licensed in every state in which they conduct business. For example,
Austin says, “to be licensed in the State of Alabama, an individual needs to
pass a national exam, background check, credit check and pre-license education”
as a part of the SAFE Mortgage Licensing Act of 2008, a federal law applicable
in every state in the country. So there should never be a reason why a lender
or broker cannot prove they are licensed.
Question #2: Are you giving me the lowest rate possible?
A lower interest rate
translates into a lower monthly mortgage payment; so naturally, a higher rate
means a higher monthly payment. Since obtaining the best interest rate is so
important, Carrie Ramirez, branch manager at Castle and Cooke Mortgage in San
Antonio, Texas, advises consumers to do their homework. In addition to asking
the lender if it is the lowest rate, Ramirez says, “with today’s technology,
you should search interest rates online and see if they are close to
what you’re being offered.”
However, keep in mind the
interest rate that a consumer is offered may be dependent on several factors,
so two people with the same income who are purchasing a house at the same price
may be offered significantly different rates. “The difference in rates is based
on your credit and your down payment,” says Ramirez. “No two borrowers have
the exact same financial information, and this accounts for the different
Question # 3: As a mortgage broker or banker, how much money would you be paid?
Many consumers mistakenly
think that their only expense is the purchase price of the home. However, the
mortgage broker or banker must also be paid for their services. For mortgage
brokers, who serve as middlemen to find loans for the consumer, it should be a
set percentage, which according to Austin, is based on the loan amount
borrowed. “Regardless of the loan program or interest rate, mortgage brokers
should be paid the same percentage,” he says. This amount is usually one-to-two
percent of the total price of the mortgage, according to Realtor.com.
In addition to the fees
that mortgage bankers charge for their services, they also charge processing
fees, application fees and document preparation fees, according to the Ohio
Department of Commerce’s Office of Consumer Affairs. Many of these fees can be
negotiated, but it is important to know the final price so you won’t be
surprised at closing.
Essential Question #4: What other costs besides your fees will be associated
with this loan?
In addition to mortgage
broker or banker fees, there are numerous other fees involved in the mortgage
process, and it is best to know these in advance so you won’t be overwhelmed.
For example, in addition
to an application fee, which is paid when you apply for a loan, an appraisal fee is charged for evaluating the value of
the property that you intend to purchase. A credit-reporting fee is charged to
analyze your financial history to determine your credit worthiness, according
to New York's Better Business Bureau. In addition, New York’s BBB notes that
there is a commitment fee, which accompanies the loan commitment letter that
the borrower must sign. Additionally, a lock-in fee may be charged to secure a
certain interest rate; there is more information on this fee below.
But we’re not through yet.
The Ohio Department of Commerce’s Office of Consumer Affairs reports that there
may be upfront “points” to pay to lower the interest rate. Austin explains,
“typically a borrower is quoted a ‘par rate.’ If they want a lower rate, they
must pay fees up front to obtain – or ‘buy down’ the rate.” As a general rule,
one point is equivalent to 1% of the mortgage loan amount.
The Department of Commerce
also reports that there may be charges from the title company, which may
include fees for a title search, title insurance, and fees from the attorney.
Question #5: How long will it take to process my loan application and what
might delay it?
This is an important question
because the longer it takes to process your application, the greater the chance
that the desired house may be sold to someone else who is already approved and
ready to complete the purchase.
So what can you do to help
prevent this? The mortgage banker should work diligently to expedite the
process, which Ramirez says, can take less than two weeks, “if a borrower
supplies all the correct documentation from the beginning and there are no
surprises.” However, she notes that incomplete data will put the loan approval
on hold. For example, the borrower may have supplied the requested bank
statements, but if the statements do not include the bank’s name, or the
deposits do not list the source of payment, the information cannot be verified
and the process can come to a grinding halt.
Question #6: Can I lock in my interest rate and if so, how much would it cost?
If you are offered a low
interest rate, it is important to lock-it-in, so it won’t rise before you close
on the house. According to Austin, as soon as “the loan application is in the
system, and the credit scores and a property address have been determined,” the
lender should be able to lock in the rate. However, if borrowers do not
find a house immediately and need to lock in their rates for longer than 60
days, an upfront fee-may be required.
However, while it is a
good idea to lock in rates in case they begin to rise, be aware that the
situation could be problematic if they fall. The Ohio Department of Commerce’s
Office of Consumer Affairs warns that if interest rates drop, “you will likely
still receive the locked rate (unless you negotiate different arrangements).”
Question #7: What type of documentation will I have to provide?
Knowing what type of
documentation you need to have can also prevent surprises and unexpected
delays. In fact, the lender can cancel the entire mortgage process if you
cannot produce or verify the requested information.
You can avoid nasty
surprises by making sure you know your mortgage broker’s qualifications and
what is required of you, and ensuring you understand the terms and fine print
regarding your mortgage.
Terri Williams – To view the original article click here