No one likes unpleasant surprises, especially if you are going through possibly the largest purchase of your life. Knowing what questions to ask your lender during or before the loan application process is essential for making your mortgage approval process as smooth as possible.
Here are the top six questions and explanations to make sure you are fully prepared.
1. What documents would you require in order to receive a full mortgage approval from the underwriter?
An experienced mortgage professional will be able to uncover any potential underwriting challenges up-front by simply asking the right questions during the initial application and interview process.
Residence history, marital status, credit obligations, down payment information, income and employment verifications are a few examples of topics that can lead to stacks of documentation required by an underwriter for a full approval. There is nothing worse than getting close to funding on a new home just to find out that your lender needs to verify something you weren’t prepared for.
2. How long will the whole process take?
If you are buying a home, you are bound by the terms of the purchase contract which specifies how many days you have to get a loan approval and close the escrow. So you need to find out in advance if the lender you are working with will be able to meet those deadlines.
As long as all of the documents and questions are addressed ahead of time, your loan officer should be able to give you a fair estimate of the total amount of time it will take to close on your mortgage. You should also inquire about anything specific that the loan officer thinks may hold up your file from closing on time.
3. Are my taxes and insurance included in the payment?
The answer to this question affects how much your total monthly payment will be and the total amount you’ll have to bring to closing for your property. If you include your taxes and insurance in your payment, you will have a higher monthly payment to the lender, but then you also won’t have to worry about coming up with large sums of cash to pay the taxes and insurance when they are due.
4. Which of the estimated fees can increase at closing?
The loan officer will provide you with a Good Faith Estimate (GFE) with details of your closing costs. But it’s just an estimate and can change at closing. So, ask the loan officer to explain every single item on the GFE and ask which ones can increase at closing. Understand why they would increase and by how much they can increase. That will prepare you better to arrange for the “cash to close” amount.
5. How do I lock in my interest rate?
It’s good to know what the terms are and what the process is for locking in your interest rate. Establishing whether or not you have the final word on locking in a specific interest rate at any given moment of time will alleviate the chance of someone else making the wrong decision on your behalf. Also, understand what happens if the loan doesn’t close by the lock expiration date. Can the rate be extended? If yes, who pays the extension fees? If you would be responsible, ask how much that fee would be.
6. How much will I need for closing?
The new Good Faith Estimate implemented in 2010 essentially only reflects what the maximum fees are, but will not tell you how much you need to bring to closing.
Ask your loan officer to estimate how much money you should budget for so that you are prepared at the time of closing. Your earnest money deposit, appraisal fees and seller contributions may factor into this final number as well, so it helps to have a clear picture to avoid any last-minute panic attacks.
Amazon.com Best-selling author, Shashank Shekhar (NMLS 8176) is a mortgage lender with Arcus Lending, offering loans for home purchase and refinance. Shashank has been featured as a mortgage expert on Yahoo! News, ABC, CBS, NBC and FOX. He has been named "Top 40 under 40" most influential mortgage professionals in the country.
