Points to keep in mind when talking to lenders:
Finding the right lender is an important step that can save you thousands of dollars. The lowest interest rate is important, but lenders charge fees and offer different terms that can make a big difference over the life of a loan.
RATES
What are the interest rate and annual percentage rate on the loan?
Find out what the interest rate and the Annual Percentage Rate (APR) on the loan. The APR is the interest rate plus any fees and points charged by the lender. It is the best way to compare loan costs.
Tip: The lowest interest rate is not necessarily the best loan. Fees and costs can run up loan costs considerably.
POINTS
How many points will be charged?
A point is 1% of the loan amount and typically are paid up front for a lower interest rate.
Tip: A loan with a low interest rate and high points may cost you $1000’s more up front than a higher interest rate and low points. However, discount points are tax deductible by the buyer even if paid for by the seller.
FEES
What is the total cost of the fees charged?
Lenders charge fees for such things as application, loan origination, document preparation and review, underwriting and tax service. These fees can be combined by some lenders into one fee or can be charged separately. These lender fees are different from closing costs as they relate to your loan. Closing costs are for the ‘transaction’ (Termite & roof inspection, Loan appraisal, title insurance, etc.)
Tip: Some lenders quote low interest rates and points and then make up the difference by charging higher lender fees. Ask what lender fees are charged, what is included in those charges and what you will be charged for separately.
LOCK-IN THE INTEREST RATE
Is there a lock-in policy? Is there an additional charge to lock in an interest rate and discount points?
Many lenders offer a lock in policy that guarantees you a certain interest rate and points on closing day. Options for locking in include locking in the application day rate for a specified number of days or waiting to lock in a rate prior to closing day. The ‘no lock’ alternative is accepting the prevailing rate and points at closing.
Tip: The length of the lock varies by loan type and fees charged can also vary. Be sure your lock-in is in writing and includes both rate and points, because either one can and will change. If rates and/or points are rising, the one time lock-in fee may be a good investment to save money at closing and over the life of the loan.
PROCESSING
How long will it take to process the loan?
Processing the loan paperwork will vary among lenders and type of loans. Processing is where all the documents are gathered to complete an approved application. After final application approval, an effective lender should be able to fund your loan within 4 – 7 working days.
Tip: If time is of the essence, you will want a lender with a quick processing and funding turn around time. Or get a complete loan approval up front then start your home search.
PMI
Can I finance the up front Private Mortgage Insurance (PMI) premium into the loan amount?
If your down payment is less than 20% of the sale price, you will be charged PMI, an insurance policy to protect the lender in case you default on the loan. Some lenders allow you to include the first year’s premium in the amount you borrow.
Tip: If you are short of cash, this option could help you qualify for a loan and reduce your cash outlay at closing.
PREPAYMENT
Is there a prepayment penalty?
Normally you can prepay a loan without penalty if you notify the lender in writing that you are either selling the home or refinancing the loan. In many areas prepayment penalties are not allowed.
Tip: Be sure there will be no prepayment penalty. Sometimes prepayment penalties can run for the first couple of years of the loan.
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