Important Questions You Need to Ask Your Loan Officer

Shopping for a mortgage can be just as stressful as choosing the right home. As you interview lenders, you should ask them certain questions. You should know the ins and outs of any mortgage you are considering. After all, you could have this loan for the next 30 years and it will likely be one of the most expensive purchases you make in a lifetime.

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Keep reading to learn the top questions you should ask of a loan officer.

What is the interest rate?

It’s the answer we all want right away. How much is the loan going to cost you? Many people assume the interest rate only affects their monthly payment and that’s what they focus on. While it’s a good place to start, you’ll want to look at the big picture. How much interest will you pay over the life of the loan?

You can then ask your loan officer if there is a way to lower that number. A few options may be to choose an adjustable rate mortgage to get the lower interest rate for a few years or to buy the interest rate down with discount points. If you don’t ask, a lender isn’t going to give you options to get that lower rate, so make sure you ask.

What are the closing costs?

The next most important question is the amount of closing costs. They play a role in the affordability of a loan too. Getting a loan with a low-interest rate may lose its excitement if the closing costs are through the roof.

Ask the loan officer for a breakdown of the closing costs. Also, don’t be afraid to ask if there’s any room for negotiation. Many lenders are willing to lower their closing costs if there’s a risk of losing your business. You can increase your chances of negotiating closing costs by shopping around with other lenders and letting each lender know what another lender offered.

What are the loan terms available?

Most borrowers assume that they need a 30-year term. This isn’t the case all of the time. Many borrowers qualify for a 15, 20, or 25-year term. You may want to explore your options as a way to decrease the amount of interest that you pay on the loan.

The longer you borrow the money the more it costs you. Lenders generally offer the lower interest rates to borrowers that borrow money for the least amount of time. It’s worth asking a lender for quotes on a 15-year term even if you think it’s way out of your league. If you honestly can’t afford it, ask for slightly higher terms of 20 or 25-years to see if they are more affordable. Even shaving five years off your loan can save you thousands of dollars in interest.

How do you lock the rate?

Each lender has their own rate lock policy. You should check with your lender to see what they require. Some require a rate lock fee. Others require a certain amount of time or certain conditions met before you can lock your rate.

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Knowing the policy and cost beforehand can help you plan. Some lenders offer extensions while others make you take the higher of the locked rate or the current rates. Asking pertinent questions about the rate lock policy can help you choose the right lender and the right time to lock your rate.

What is the turnaround time?

If you are buying a home, time is of the essence. You have a contracted closing date to meet. You should know a lender’s ability to meet that deadline, which you can find out by asking their turnaround time. Each lender has different policies and timelines.

Ask specific questions about how long it takes to be pre-approved, approved with conditions, and final approval for closing. Also, ask the lender about their preferred method of communication as this will play a role in the turnaround time. Oftentimes loans are held up because of the borrower not answering the needs of the lender. Knowing how the lender will contact you and what they will need can help you speed up the process on your end.

Do they require escrow?

Each lender has a different policy regarding escrow accounts. This is the account that accumulates money for your taxes and insurance. Some lenders don’t mind if you pay them yourself as long as you show the financial capability of doing so.

Some lenders charge 1/4th of a point in order to waive the escrow account. Knowing what a lender requires and if it will cost you to waive the account will help you choose the right lender. While there’s no wrongdoing in waiving the escrow account, it can help to give you peace of mind knowing that your taxes and insurance are paid on time each year.

Does my approval expire?

Whether you have a pre-approval or an approval with conditions, you should know how long before it expires. Approvals aren’t good indefinitely. Lenders need to keep your qualifying factors current. In a matter of a month or two your credit score, income, and assets could change dramatically. Lenders need to know that everything is status quo from when you applied for the loan. If anything changes, it can change the landscape of your loan.

Knowing when the approval expires can help you know how fast you need to move. It will also let you know if you’ll need to provide new qualifying documents if your purchase and/or refinance takes longer than you expected.

Asking your loan officer these questions can help you get a feel for what they offer and where you stand. Don’t be afraid to ask as many questions as you have of the lender. This way you can have a good understanding of what to expect and can choose the lender that is right for you.

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JMcHood

Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.

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