8 Things Your Mortgage Lender Should Disclose To You

Craig Berry
Craig Berry
The Mortgage Reports Contributor
July 29, 2014 - 5 min read

It’s a good time to be shopping for . 30-year interest rates have been below 4.25% for the last five months, and many lenders now quote rates in the 3s.

For buyers, the availability of low and no-dow payment mortgages is making homeownership more accessible; and for refinancers, low interest rates have allowed the FHA Streamline Refinance and VA Streamline Refinance (IRRRL) programs, as well as the HARP program for underwater homeowners to come back into the picture.

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Will You Get The Lowest Available Rate?

Mortgage rates are at their lowest levels in more than a year, but not everyone will get access to today’s lowest rates. How much you’re borrowing, the value of your home, and your credit score all help determine your final rate quote from a bank.

Home buyers have three basic steps they can follow. First, get pre-approved.

Getting pre-approved before beginning to buy a home will help you set your home purchase expectations. For example, you may believe that the most home you can afford is a 2-bedroom, 2-bathroom in a particular neighborhood, but it’s the 3-bed/3-bath you really want.

During the pre-approval process, you may find that you’re actually eligible to buy either. Pre-approvals help buyers to find their limits.

Next, consider a home’s affordability. There is more to owning a home than just paying on the mortgage. Buyers should account for maintenance costs and should have access to an “emergency fund” of at least 6 months of living expenses.

More reserves are better, but six should be a minimum.

Lastly, buyers should confirm their credit scores and check for errors or omission.

There are public-facing websites which can give you a free credit report, but your lender will often provide you with an official one during the pre-approval process. Be sure to ask for it.

With conventional loans, the higher your credit score, the better your rate will be. With , , and , credit scores are less important.

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8 Questions You’ll Want To Ask Your Lender

As part of the mortgage approval process, there are a series of questions you’ll want to ask your lender. Some relate to your interest rate and closing costs; and, others relate to the process of getting approved.

The more you know, the smoother your approval can be.

What are my closing costs?

There are many different types of fees associated with obtaining a mortgage. There are various services provided by the lender; and services provided by third parties in the transaction, which includes appraisers and title companies.

Ask your lender for an estimate of their closing costs and the closing costs of any outside party. Review each estimate carefully so you fully understand what each item means. When in doubt, ask for clarification.

What is my interest rate?

This is an obvious, but important, question. Your mortgage interest rate is important because it’s used to calculate your monthly payment, plus, it will determine how much interest you’ll pay to the bank over the life of the loan.

Note that the lowest rate isn’t always the best rate. Some loans require mortgage insurance which can elevate your monthly costs; and, sometimes, a zero-closing-cost mortgage is your most suitable option. Zero closing cost loans often come with higher rates.

When will I be able to lock my mortgage rate?

Mortgage lenders enforce different rate lock policies, so you’ll want to get clarification. Some lenders allow you to lock a mortgage rate for 60 days, 90 days, 180 days, or longer. Long-term locks can be helpful for new construction homes. Just remember that the longer your lock period, the higher your mortgage costs will be.

Should I expect to pay discount or origination points?

Discount points are an upfront loan cost which give borrowers access to lower mortgage rates. Origination points are loan fees paid to a lender. In both cases, one point is equal to one percent of the loan amount such that 1 on a $200,000 loan would cost $2,000.

It’s often optional for a borrower to pay discount points to get access to lower mortgage rates; or origination points to compensate the lender directly. Ask your lender what the impact to your bottom-line would be with, and without, points. This way, you can understand all of your options fully.

What are the downpayment requirements?

Some loans programs require just a small downpayment; the FHA loan, for example, required just 3.5% down at closing. However, except for the VA loan which never charges for mortgage insurance, loans with less than 20% down will require some form of mortgage insurance. This is true for conventional, FHA and USDA mortgages.

Another consideration with your downpayment is that larger downpayments can get buyers access to lower mortgage rates. Be sure to ask your lender whether a larger downpayment would make you eligible for lower mortgage rates.

How long is the mortgage approval process?

There are tens of moving parts in a mortgage transaction, and many are co-dependent. If the lender’s underwriters are backed up, for example, or if the appraisal process is requiring extra time, the overall approval process can slow to a crawl.

The amount of time is takes to process a loan application will vary between lenders. In today’s market, some lenders are closing loans in as few as three weeks. Others are requiring 60 days or more. Make no assumptions about the time required to approve your loan. Ask your lender how long it will take.

What paperwork will you need to approve my mortgage?

With few exceptions, mortgage lenders require similar documentation in order to underwrite and approve a mortgage. Proof of income via federal tax returns; and proof of assets is required nearly 100% of the time. Then, based on the traits of your loan and credit profile, you will be asked to provide other, supporting documentation.

Your lender won’t ask for paperwork unless it’s needed to approve your loan. Gather everything that’s requested.

What may delay my loan approval?

Mortgage approvals are sometimes delayed. This can happen when information was not properly disclosed at the point of application; or when the buyer makes an inadvertent change to its credit profile. One way to cause a delay is to purchase a car between application and your closing date. Another is to omit key details about your employment history.

Limit delays by providing your lender with complete and accurate information. Your lender can also provide you with a list of “Do’s and Dont’s” to help you avoid ruining your loan while its in-process.

Compare Today’s Low Mortgage Rates

Today’s mortgage rates are at their lowest levels in more than a year, which is helping to make homes more affordable nationwide. It’s a terrific time to consider buying a home, or refinancing one. Mortgage rates may never be this low again.

Prepare yourself for your approval and ask good questions of your lender. Lender mortgage rates are available online at no cost, with no obligation to proceed, and with no social security number required to get started.

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