Yesterday, someone asked me, What are some good questions to ask to choose the best mortgage?. I thought it was a great question. Here are the questions I, a Chicago mortgage broker since 2002, would ask if I were looking for a mortgage.
1. What’s the interest rate?
This one’s obvious, lower is better. But to really get a good idea, you have to ask it together with the next one.
2. What’s the APR on this loan?
The lowest APR might not be the best, though. Some offers you get don’t include all the fees in the APR calculations. So, you have to also ask:
3. What are the fees included in the APR?
Get it in writing. Don’t ask if there are fees that are not included in the APR (Annual Percentage Rate, aka, the cost of the mortgage loan). If they don’t put all of them in the APR, they might lie here too. Compare APR fees line by line.
4. What are the closing costs, in dollars?
An APR based on all the fees would have them, but as mentioned above, not all APRs are complete. Besides, it’s easier to compare dollars vs. dollars. Again, get it in writing and signed. On a ‘Good Faith Estimate’ because those are the standard.
5. Do I have to pay discount and origination points? How many?
Technically, these should be questions 5 and 6 but they’re so closely related that I made them be #5 only. Sue me.
When you talk about discount points, a point equals 1% of the loan amount. You get a lower rate by paying discount points. Usually paying 1% upfront (1 discount point) lowers your interest rate by 0.125%.
On a $1,000, 30-year loan at 7.5% buying down the rate by 1 point ($1,000) lowers your monthly payments by $8.53. It takes 117 months (that’s 3 months short of 10 years) to get back your $1,000. Origination fees are fees your mortgage broker charges for doing the loan.
6. This one’s like the previous, a twofer. Does it cost me to lock the rate? When can I do it?
Interest rates change. If you like the one you’re being offered, you should lock. A lock is for a short period of time, usually long enough to get you the loan. If rates go up, you still get the low one you locked.
7. Does this loan have a prepayment penalty?
Some mortgage loans have them. Lenders give you a lower interest rate but want to make sure you stick around long enough for them to make the money they want. Whether they’re for 1% of the loan amount or 6 month’s worth of interest, you need to know. And you need to know how long you must wait to refinance the loan or get rid of it (as in when you pay if all off because you won the lotto or sold the home).
8. How much must the down payment be?
The interest and terms of your loan are in relation of the down payment. The higher the down payment, the less risk you represent, the lower the interest rate, the better the terms.
9. What’s required to qualify for this loan?
Different lenders have different rules. Some are stricter than others. You need to know all this upfront.
10. What are all the documents I will have to provide?
Depending on loan type and lender, the documentation required is different. Providing all the documents required speeds up things, ensures that your lock doesn’t expire.
11. How long is it going to take do get the mortgage loan?
The answers vary depending on what’s happening in the industry, in the country, on the lender itself. You need to have a good idea so you can know for how long to lock in your loan.
12. What can delay the approval process?
If you provide accurate and complete information from the start, there shouldn’t be problems. However, occasionally, there are things outside your control that can slow down the process. Such as, credit problems. (That’s why it’s best you get copies of your credit reports before you apply for a loan. To make sure the information there is accurate. The underwriter can still have problems. But having accurate credit reports reduces the possibilities of that happening.)
If things in your financial situation change, let your broker/lender know (you got a promotion, lost your job, got married, or divorced, etc.). To not do so could be fraud. Or deprive you of the benefits of getting a lower rate.
The answers to these questions should help you choose the right mortgage broker, the one that’s got the best mortgage for you. Or, for that matter, any mortgage broker or lender.
You can now download for free your copy of “7 Costly Mistakes People Make When They Get a Mortgage (and How to Avoid Them)” and save thousands on your next Chicago mortgage. Though the Chicago mortgage rates are low, expert Chicago mortgage brokers’ information can help you get a better mortgage.