10 Questions To Ask Your Mortgage Broker or Lender Part 1

1. Which Type of Loan is Best?



Reputable lenders should always first discuss your options and explain to you in great detail the different type of loans that you can take advantage of. Don't be afraid to ask a lender to explain the pros and cons about:


• Fixed-rate loans.


• Adjustable-rate loans.


• Interest-only loans.


• Negative-amortization loans.


2. What is the Interest Rate & Annual Percentage Rate


The annual percentage rate (APR) is derived by a complex calculation that includes the interest rate and all the other related lender fees divided by the loan's term. However, bear in mind that:


• Many lenders do not compute APR correctly.


• There is no way to accurately compute an APR rate for an adjustable loan.


• It does not account for early payoffs.


If your interest rate is adjustable, ask about its:


• Adjustment frequency


• Maximum annual adjustment


• Highest rate (Cap)


• Index


• Margin


3. What are the Discount Points and Origination Fees?


Each "point" is equal to 1 percent of the loan amount. Therefore, 2 points on a $100,000 loan cost $2,000.


• Sometimes lenders charge origination fees in addition to points.


• Points "buy down" the interest rate, meaning the more points you pay, the lower the interest rate.


• Points are also tax deductible, even if the seller pays some or all of the points.


4. What Are All the Costs?


All the costs of a loan include not only fees that go into the lender's pocket but also related third-party vendor fees such as:


• Appraisal


• Credit report


• Lender's title policy


• Pest inspection reports


• Escrow (where applicable)


• Recording fees


• Taxes


An estimate of these fees constitutes the Good Faith Estimate or GFE, which the lender is required by federal law to give to you.


5. Will the Lender Guarantee the GFE?


According to the Real Estate Settlement and Procedures Act (RESPA), lenders have three days after you've applied for a loan to give you the Good Faith Estimate, containing all the costs of your loan. Points to consider:


• Since lenders are not required to guarantee GFEs, this document is worth about the cost of the paper on which it is printed.


• However, there is a lot of pressure on lenders by consumers to guarantee their GFEs.


• If your lender refuses to stand behind its estimate, go elsewhere.

Stay Tuned for part 2
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