5 Questions to Ask Before Selecting a Mortgage Lender
Selecting a lender to finance your home purchase is a major decision that can significantly impact your real estate transaction. Therefore, it pays to shop around! If you cast a wide net initially, talking to different types of lenders, you’ll learn a lot about pricing and products.
Before making a decision, however, you’ll want to feel confident that a lender offers more than an attractive rate. So here are five questions that can help finalize your choice.
1. What are all your lender fees? And what are the other estimated closing costs?
Lenders often charge origination fees which increase their profit on your loan beyond the borrowing rate. However, it can be difficult to isolate this cost since origination fees might be included in the interest rate, charged separately, or a little of both.
Lenders must provide a Loan Estimate that details their origination charges, but you won’t receive it until after you apply for your loan. If you ask about lender fees in advance, it can be easier to compare options, and you may be able to negotiate these charges.
In addition to lender fees, you’ll also need to pay closing costs to various third parties, including appraisal, survey, and title search fees. You may be able to shop around for some of these services too.
2. Can you lock the mortgage rate?
If you’re concerned that interest rates may rise, ask your lender about locking in your rate, so you don’t have to stress about higher monthly payments. With a rate lock, your borrowing costs won’t go up, but they won’t decrease either if rates decline.
Some lenders will let you lock your rate without a charge, but you may have to pay a fee, depending on how long you want to preserve the rate. Alternately, you can decline a rate lock and pay the current rate when you’re ready to finalize your mortgage.
3. Are your loans underwritten in-house, and how long does this take?
Mortgage applications go through several steps. Typically, a loan processor makes sure you’ve submitted all the necessary documents before moving your file to the underwriting department, where an underwriter evaluates your creditworthiness—or requests additional details—before your loan is approved.
Usually, this process goes smoother and faster if your loan officer and the underwriter work for the same company and have regular, close contact. However, some lenders outsource their underwriting.
Ask the loan officer how they manage the process and how frequently they provide updates. That way, you’ll know what to expect and be able to gauge their commitment to customer service.
4. Do you guarantee on-time closings?
If your lender can’t close your transaction on the date specified in your purchase contract, it might cause significant problems, including extra moving expenses or changes to your interest rate.
Ask the loan officer how they will help remedy the situation if they cannot close on time. For example, some lenders will provide credits.
5. Can you provide a preapproval letter and any other communication that improves my position in the seller’s eyes?
When buyers compete for homes, sellers are typically more willing to negotiate with a buyer who looks solid on paper. There are numerous ways to strengthen your financial position, including putting down a larger down payment, offering more earnest money, and demonstrating that your financing is already in place.
Most lenders will provide an approval letter (once your loan is approved) that conveys your status and borrowing limit. But some lenders go a step further. For example, ask the loan officer if they will contact the seller’s agent to emphasize that their underwriter has already reviewed and approved your loan and that they can close promptly!
Ultimately, you want to select a mortgage lender who acts as a partner, helping you make the best borrowing decisions, and is committed to helping you secure your home purchase.
When starting your search, ask your Accredited Buyer’s Representative for their recommendations based on other clients’ experiences. Your buyer’s rep can provide valuable perspectives. However, the choice remains yours.
When selecting a lender, you have many options! Therefore, it pays to ask questions and learn as much as possible before finalizing your decision.