Questions to Ask Every Mortgage Broker or Lender on Your List
Americans will borrow about $2.4 trillion in mortgages this year, according to a forecast from Mortgage Bankers Association.
For many, it will be the biggest financial transaction they ever make. To find the right professional to handle it, here are the questions you should be asking:
What Is Your Closing Ratio?
Every borrower should prioritize working with a lender who has a successful track record. So, ask what their closing ratio is, also known as a close rate. It means the ratio of completed loans compared to applications.
For loans that fall out of the pipeline, ask why. A low close ratio could mean they don't have enough support staff, or signal other problems.
“You also want to ask what they do well in the mortgage lending process in order to make their loans close and hopefully that answer is that he or she is detailed-oriented and has an open line of communication with borrowers,” said Ward Morrison, president and CEO of Denver-based Motto Mortgage.
Also, be sure to ask mortgage professionals how they communicate with clients to ensure their style meshes with your own. If the broker prefers texts messages and you would rather have phone conversations, it could be a sign to move on to another professional on your list.
Tip: Looking to buy soon? Set yourself up for having your offer accepted on a home by getting preapproved for a mortgage prior to your home search.
How Much Can You Comfortably Qualify For?
When you learn what size mortgage your qualify for, ask yourself what your comfort level is with the related monthly mortgage payments.
“The old verbage was that borrowers should plan on spending 28% of their income on monthly mortgage payments, but various mortgage products may allow them to spend more or less,” said Morrison. “You may want to spend less so you have the financial freedom to do other things in life or you may want to spend more because you view your purchase as your forever home.”
Learning your options can factor into your decision on how much you want to spend each month. Retail bankers will only be able to share the products offered by their bank, but independent mortgage brokers can shop a number of lenders for you.
“If you work with a broker, you could be looking at 20 options instead of just one or two,” said Morrison.
Mortgage First, House Shopping Second
Contact a mortgage lender first, before looking at properties, to find out how much house you can afford to take on, said Lauren Layman, national president of the National Association of Professional Mortgage Women.
“Potential home buyers will often start the process by first looking at houses and then fall in love with a house that’s not in their price range,” she said. “They’ll become discouraged and exit the home-buying market.”
Instead, find a lender or a broker who will help determine exactly what you qualify for and mitigate any future deterrence as you house-hunt, she said.
Next Step: Fast Track Your Home Loan Preapproval
How Will Your Down Payment Impact Your Mortgage Rates?
The amount of money that you put down on a home gives you a certain measure of control over your mortgage options. That is, the more money you can put down, the better the mortgage rates available to you.
“Interest rates will be higher if you only put down 3%,” said Roy Varner, loan originator at AmCap Home Loans. “If you put down 20%, you won’t have to pay the mortgage insurance premium or ‘MIP’ that protects the bank against default.”
Find Out if the Lender Offers a Rate Lock Program
Rate lock programs typically come with an additional fee, but they allow borrowers to secure a rate from the time they are initially approved for a loan up until the loan closes.
Typically, rate lock program that gives borrowers about 90 days to close a loan. In the current market where mortgage rates are particularly volatile, such programs can make a home purchase more viable for some buyers.
That means asking if you can re-lock if mortgage rates go down, and whether there is an additional fee for that.
New-home buyers will be particularly sensitive to rates because the mortgage doesn’t close until the house is completed, which typically takes five or six months. If rates spike in the interim, it’s possible a buyer can no longer qualify for the loan.
“If you’re buying a new construction, you may want to get into a rate lock program because rate fluctuations can cause buyers to fall out of contract by the time the home is build,” said Rouvaun Walker, mortgage committee chair at the National Association of Real Estate Brokers and CEO of PhianceUS. “But not every lender offers the program.”
The Questions Go Both Ways
The mortgage professional should also come to the table armed with a list of questions. They need to understand your unique financial profile and history if they’re to give you accurate information about your lending options.
It should be an open dialogue, said PhianceUS’s Walker.
“There should be a flow of questions back and forth until everyone is comfortable and if the client has more questions, they can still ask them later on in the process,” he said. “You’re both trying to build a rapport and to be as transparent as possible with each other.”
Don't Miss: Thinking about buying a home but want to secure a good rate? Use this tool to find a lender that gives you the power to lock an interest rate for an extended period so you can shop around for a home comfortably knowing that your rate is secure and won't go up.
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Kerry Medina is a Chicago-based writer with expertise in real estate, hospitality and technology.