Mortgage Questions To Ask The Lender

When and why mortgage questions to ask the lender are important.

Updating this important post for new borrowers who are thinking about getting a mortgage for the first time. There were terms used years ago that are no longer exist. Even though this changed a few years ago, we want you to be aware of the difference between these documents.

When applying for any mortgage loan it is beneficial and imperative that an applicant ask questions so they are fully knowledgeable of the product, interest rate, origination fee, points, and any closing cost that is being paid in the loan.  The lender’s agent/loan officer is required to know and be able to explain all questions. Ask questions, get answers!

The List:

NOTE: THE Good Faith Estimate is now:  Loan Estimate  THE Truth in Lending (TIL) and final HUD1 is now: Closing Disclosure **These new disclosures are explained in another post.

1. Always ask the loan representative to explain any question they ask you that you do not understand why it is being asked.  There is never a dumb question, only one that is not asked.
2. It is imperative that an applicant understands that they should receive at least the Loan Estimate within (3) days of application, (7) days prior to consummation or closing.  If you do not get them, you should call and request them as these disclosures are required by law and you should receive explanations for the cost that is on these forms.   The Good Faith Estimate (GFE, OLD FORM): NOW REFERRED TO THE as LOAN ESTIMATE and the Truth-in-Lending (TIL, OLD FORM) form NOW REFERRED TO THE CLOSING DISCLOSURE, and takes the place of the HUD1 as well. THESE UPDATED FORMS- BECAME APPLICABLE IN OCTOBER, 2015.  The third disclosure is the Servicing Disclosure which will indicate to you how much of the originators/lender’s volume of loans is serviced by them or if they sell all of their servicing.
3. On the LOAN ESTIMATE, there are fees at the top of the form which include the origination cost of the loan.  It is lumped together at this present time on the form.  This is the origination fee for the lender and if you are using a broker their fee will be included here also.  It will also include any application fee, underwriting fee, and processing fee.  You should ask the loan representative to explain all fees which are lumped together.  It is the law; you have the right…take advantage of this important issue.
4. Discount points…these points (if applicable) are listed under the origination fees.  The only time you should have discount points is when you have an interest rate change that requires points to get that rate.  Meaning, if you chose a rate of interest that is not the going rate for the day you have requested.  For example, the rate for the day without any cost would be 4.750%.  You desire an interest rate of 4.500%.  You will have to pay to get a rate of less than 4.750%. It can be .125%, .250%, .375% .500%, etc., depending upon how low you take it. 
5. The Closing Disclosure must be delivered to you three (3) business days prior to closing for your examination of all of the fees, and any changes made to the Loan Estimate. This replaces the HUD1 settlement statement, and final Truth In Lending forms previously given.
6. You do not have to use the closing agent that the loan originator suggests.  Sometimes it can be to your advantage to do so as they may have a special relationship with the closing agent that will make the closing move faster. 
7.  Request a list of all the fees being charged by the Title Company, Closing Agent, and Closing Attorney as they may be identified if you are not sure what might be lumped together. These fees will include the following: 

• • Attorney fee, title search, and document prep. Additional title fees will include the Title Insurance (this can run 1% of the loan amount sometimes; if you want an owner’s policy it is more but much less than the lender’s policy).  Note:  The Attorney gets a portion of the title insurance fee. 
  •  Additional fees that do not go directly to the Attorney include; transfer tax (state tax stamp fees) and recording fees.
  • You will have to establish an escrow account with reserves for hazard insurance, taxes, and possibly mortgage insurance. 
  • Pre-paid interest will also be included in settlement charges for closing before the end of the month.  For instance; if you close on the 15th of the month you will have to pay 15 days of accrued interest.  If you close on the 30th, you will only have that day if that is the last day of the month.
  • You will have to have a 12-month paid-up policy of hazard insurance at the closing.

 Product:  you should understand what kind of product you want; at least some of it.

1. Meaning a fixed-rate or ARM.  If you are obtaining a fixed rate you know that the loan interest rate will stay the same over the life of the loan.  An adjustable-rate loan will not.  Some ARMs are fixed for the initial 1, 3, or 5 years.  Ask questions about the initial interest rate change date, the % of change, and the remaining change dates.  Each product is different for ARM and change dates vary accordingly. 
2. If you choose an ARM loan; ask for the ARM disclosure; it is a requirement of law.
3. Do not just take any product you are offered to get the loan and understand that interest rates change daily and sometimes they can rise considerably over a 3, 5, or 10-year span.  You must know that you can make the payment comfortably if the rate does go up.
4. Ask about the life of the loan cap.  This is how much the interest rate can go up over the life of the loan.
5. Ask how much the rate can adjust on each adjustment date after the initial change.

My Humble Advice – you may not want to hear this…?