RSS
Home
10 questions to ask a loan officer
Print
Email
RSS
Subscribe
Image courtesy Benjamin Lipman
Related Articles
It is relatively easy to discern the good from the bad in most professions: a professor lecturing in monotone, a dentist laughing gleefully when you flinch, a mechanic quoting outrageous repair costs when you only wanted a tune up, a realtor who never returns your call and/or is constantly dragging you to unsuitable houses. These are not people you want working with or for you.
The mortgage industry has gotten a lot of bad press over the last couple of years. There have been stories in the news about pervasive fraud, corruption, deceit and greed. That element certainly exists, but there are a lot of honest, hard-working professionals competing for your business. Unfortunately, loan officers can be difficult to quantify. They typically work diligently to get your business. Normally you don’t become aware of their shortcomings until late in the loan process. Outstanding loan officers distinguish themselves from the pack in many ways. You can easily separate the wheat from the chafe by asking a few questions and staying vigilant for ‘red flag’ responses.
What is your availability?
The correct answer to this question is: "Whenever you need me." I have heard countless horror stories from consumers about absentee loan officers. A good loan officer will give you a cell phone number or home phone number for emergency use. They should be available at YOUR convenience…not theirs. Many personal financial matters and real estate transactions occur over the weekend. Often people don’t have time to look at property or sort through paperwork during the work week. Whether you need an updated pre-qualification letter, information or have questions, your loan officer needs to be available.
What is the best loan?
There is not one answer to this question. If someone starts suggesting programs or quoting you interest rates without inquiring about your situation, then you should proceed with caution. Good loan officers ask questions to evaluate your situation, your needs and your objectives. When loan officers quote an interest rate without the necessary information, they are quoting based on a ‘best case’ scenario. It is little more than fiction and mythos.
Though most mortgage advertising would have the consumer believe that rates are ‘one size fits all,’ that is not the case. In today’s market there are major adjustments to interest rate based on credit score, property type, loan size, whether the loan is a purchase or refinance and the amount of equity in the home. Every individual is unique in motivation and circumstance. A good loan officer takes the time to listen to you and asks questions before advising on programs and providing quotes.
What are the costs?
There is a difference between closing cost and settlement cost. Closing costs are comprised of lender fees, title fees and municipal/state taxes. Settlement costs include all closing costs plus pre-paid items, homeowner’s insurance, property taxes & pre-paid interest. The loan fees are itemized on the Good Faith Estimate (GFE). According to the Real Estate Settlement and Procedures Act (RESPA), lenders have three days after you've applied for a loan to provide you with a GFE.
Lenders are not required to guarantee GFEs. Loan officers will cite the variability of third party fees as an impediment to making any guarantees. Loan officers do not have control over third party fees, but they should be able to guarantee the lender fees.
Review all of the fees on the GFE with your loan officer. Ask for an explanation of each. Diligent inquiry and negotiation will save you money. When you collect GFEs from several lenders, you will encounter some unique and unusual fees included in quotes. These are ‘junk fees.’ If you threaten to take your business elsewhere, you can invariably negotiate, or waive, ‘junk fees.’
The lender fees and the interest rate determine the cost of the mortgage. All mortgages cost money. If you are not paying the costs up front, then they are being rolled into the loan. There is no such thing as a ‘no-cost’ mortgage. Price is always negotiable, but only when you are shopping. Once you have committed to a particular lender or broker, don't expect them to negotiate.
What are the discount points and origination fees?
A ‘point’ is equal to 1% of the loan amount. Therefore, 1 point on a $100,000 loan is $1000. Discount points can be used to ‘buy down’ the interest rate. Some lenders charge origination fees, some don’t. Points are tax deductible on a purchase. On a refinance, only discount points are tax deductible.
If you do not plan to occupy the property for more than 3 years, there is no benefit in paying points. The monthly interest rate savings will not be substantial enough to recoup the cost of the lower rate. When evaluating whether paying points make sense, calculate the difference in monthly payment with and without points. Divide the cost of the point(s) by the monthly payment difference to figure out how many months it will take you to break even on the cost of the point.
What is the interest rate and APR?
The annual percentage rate (APR) includes the interest rate and all the other related lender fees divided by the loan's term. If there is a significant different between the interest rate and the APR, your loan fees are high. The primary purpose of the APR, for consumers, is to determine which lender is providing the consumer the least expensive overall loan. The most effective way to measure which lender is providing the best deal is compare interest rates and costs on a specific loan program. The APR allows the consumer to determine which lender is providing you with Note: APR does not account for early payoffs. There is no way to accurately compute APR on adjustable rate mortgages.
Do not be deceived by quotes. You can ask for a quote on the day you interview the loan officer, but don't base any decisions on it. Keep in mind that if you consult with several loan officers while gathering quotes, you will invariably encounter individuals who tell you what you want to hear rather than the truth. The assumption is that once you have sent in all of the paperwork and paid for the appraisal, you will be too ‘committed’ to back out.
Pricing on interest rates varies throughout the day. A quote only reflects the market at that point in time. What matters is the pricing when you lock.
What is the rate lock policy?
You should find out if there is a fee associated with locking. Is the quote based on a 15 day lock, a 30 day lock or longer? The length of a rate lock does impact the interest rate. Whereas the difference between a 15 day and 30 day is minor, the longer locks (over 45 day) typically increase the interest rate or front end fees.
There are loan officers that will tell the borrower that the loan is locked when it is not. If the interest rates do not increase prior to the closing date, the loan officer makes more money. If the interest rates increase, the borrower ends up paying for it. When a loan officer tells you the rate is locked, ask for a written confirmation. When comparing loan officers, and gathering quotes, keep in mind that interest rates fluctuate throughout the day. Quotes obtained on different days are not comparable.
Is there a pre-pay penalty?
In many states pre-payment penalties are not allowed. They were more common when in the sub-prime and niche mortgage markets. Conventional, FHA and VA mortgages do NOT have pre-payment penalties. If your loan has a pre-payment penalty, you will need to know the terms. How much is it? How long is it in place? There are two types of pre-payment penalties: soft and hard. A soft pre-payment penalty will allow you to sell the home with no penalty. You only have to pay it if you refinance. A hard pre-payment penalty will not allow you to sell or refinance without paying.
Do you have in-house underwriting?
Underwriters review loans and issue conditions before approving or rejecting a loan. VA and FHA loans typically take longer to process than conventional loans; however, many lenders keep their loans moving quickly by hiring underwriters to work within their offices. Find out if your lender has a dedicated underwriter. Loan officers who are familiar with their own underwriting guidelines are likely to package a loan that will pass underwriting without any surprises.
How much time do you need to close?
Average loan processing is 21 to 45 days. Ask your loan officer about anticipated turn time and potential obstacles. Find out how long you will have to wait for the loan to fund after the final approval. To prevent problems at closing, try to use a lender who can fund and turnaround your loan within 24 to 48 hours after receipt of signed loan documents.
What is the yield spread premium?
YSP is a commission paid directly by the lender to the loan officer. This fee will be disclosed on your settlement statement at closing when a loan is brokered. Direct lenders do not have to disclose YSP on the settlement statement.
Guaranteed Home Mortgage
Follow me on Twitter: @TheSolardiva
P. 866.626.4565, ext. 239
If you like what you see, please share, subscribe, bookmark/RSS
More About:
Consumer resources
Related Articles:
Comments
Whereas last week politicians, pundits, Wall Street and economists heralded headlines touting 3.5% growth in GDP and 640,000 jobs created by the …
The Senate voted on Wednesday to extend the home buyer tax credit through April 30, 2010. The National Association of Realtors had been pushing …
