Questions You Should Ask Every Prospective Loan Provider
Mortgage - Questions you must ask every provider about every loan when you are shopping. Permission is hereby granted to print this out and use it for non-commercial purposes so long as no alterations are made and copyright is preserved.
(Disclaimer: This list is trying to be as exhaustive as possible, but is likely missing some important questions. If you have one that I missed, send it to me: danmelson at this domain name)
Is there a prepayment penalty?
If so, for how long and under what terms?
What is the interest rate?
What is the amortization period?
Is there a possibility that the note will be due in full before the amortization pays it off? (Vaguely equivalent to "is there a balloon?" but a broader question)
Is the payment interest only, or principal and interest?
(if interest only) how long is it interest only, and what happens afterward?
Is there any possibility of negative amortization (the balance increasing) if I make the minimum payment? (See my post on the Negative Amortization Loan at the bottom of this article)
Is the nominal rate different from the real rate of interest I would be charged?
How long is the rate fixed for?
(If fixed for less than the full period of the loan) What is the rate based upon when it adjusts, what is the margin, and how often does it adjust?
What is the industry standard name for this loan type?
Is the rate you are quoting me based upon full documentation, stated income, NINA or EZ Doc?
(If full or EZ doc) Assuming I have other monthly payments of $X (where $X is your other monthly payments), how much monthly income do I have to document in order to qualify? (If this is more than you make, Warning!)
How many points TOTAL will I have to pay to get that rate.
How many points of origination will I be charged?
How many discount points will I have to pay?
What are the closing costs I will have to pay?
(because they are allowed to omit third party costs from all estimates and totals, you must add the answers to the next three questions to the previous question unless the provider specifically includes them)
How much will the appraisal fee be?
How much will total title charges be?
How much will the escrow fee be.
Who will my title company be?
Who will my escrow company be?
(If escrow company is not owned by title company, i.e. same name, be prepared for unknown additional title charges).
How much, total, will I be expected to pay out of my pocket?
How much, total, will be added to my mortgage balance?
With everything added to my mortgage balance, what will my payment be?
How long of a rate lock is included with this quote?
What do you need in order to lock this loan?
If I say I want this right now, will you personally guarantee this rate with those closing costs, and will you cover the difference (if any) between the quote and the actual final cost?
After you have finished talking to this person, go check out the numbers. If you have a calculator that can handle mortgage calculations, use it. If you're able to do the calculations yourself, even better. Otherwise, do a web search for payment calculators or mortgage calculators or amortization calculators, and try out a couple of different ones (because some web calculators on lenders sites are programmed to lie!). This is math - there is only one right answer! The numbers should come out the same except for rounding errors! If the difference is more than five dollars in any case, that's a red flag! (You should also make certain the reason for the difference is not operator error. For instance, automobile payment calculators assume a different first payment than mortgage calculators, but student loan calculators should be compatible with mortgages.)
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