Questions to Ask Prospective Lenders
Your selection of a lender is one of the most important decisions you'll make during the process of getting your new home. Many people mistakenly believe they can get pretty much the same loan product and service regardless of whom they choose. Nothing could be further than the truth!
And selecting the wrong lender can cost you in ways you've likely never even thought of. While it's tempting to "rate shop", it's important to remember that not all rates are available to all borrowers...so you might not even be able to get the rate that's advertised...and there are components to loans that are critical for the borrower to understand that have nothing to do with rate.
What factors can influence or limit the loans available to a particular borrower? Just to name a few:
- Borrower's credit history and rating
- Type of income (salaried, hourly, commission, alimony/child support, etc.)
- How long has the borrower been at their current job
- How much is their down-payment
- What is the source of their down-payment (their own savings, gift from family, etc.)
What components to some loans might you want to avoid? These are among the top questions to ask:
- Does the loan you're considering have a prepayment penalty - In other words, are there financial penalties for things like making additional payments each month to reduce your principle balance or for refinancing your current mortgage or even for selling your home before a certain time? Bear in mind that such penalties can be substantial, so it's very important that you find out whether the loan you're interested in includes them BEFORE you agree to that loan. Most loans DO NOT have prepayment penalties, but it's very important that you ask your lender whether the loan you're considering does, just in case.
- Does the loan have any Negative amortization (though it may be called something different) This is when the payment you make is not enough to pay the actual amount due each month, so the difference is added to the balance on your loan. You could wind up making payments on your loan for many years, only to discover that you then owe more on the loan than you borrowed in the first place...sometimes significantly more!
- Are there Interest Rate or Payment Adjustments - While these might be okay for some people in some situations (for instance, someone who had been guaranteed an increase in income that would offset any increase in payment that an adjustable rate mortgage would entail), exercise great care when considering ANY product other than the basic fixed rate mortgage where you are comfortable and qualified for the payment the loan would entail. Your lender or Realtor can, and should, show you exactly how any change in your interest rate or payment would impact your monthly payment, and this should be done before you agree to such a loan.
As with anything we don't do often, knowing the right questions to ask to protect our interests is generally a challenge. Sometimes we simply don't have enough information to even know which questions are the important ones to ask. Before committing yourself to a lender (let alone a loan!), take the time to find a quality lender. Ask for recommendations...lenders that have well-served people you know and trust in the recent past. Your agent will also have a list of quality lenders that have served their other clients well.
Interested in a more detailed guide of questions to ask prospective lenders? Request your copy here..