Knowing what to ask your lender when you're ready
to apply for a mortgage will save you lots of money, stress and
heartache. Get answers for each of these questions before signing
your mortgage application.
1. What is the interest rate on this mortgage?
To know exactly what you'll be paying in interest over the life
of the loan, you need to know the rate. This is the most important
figure to obtain.
2. What closing costs will be charged on this loan,
and will you provide the "good faith estimate" of those
costs up front?
Mortgages come with fees for various services that lenders and other
parties involved in the transaction provide. You need to find out
what you'll be charged as early as possible. Many experts say you
shouldn't use a lender or broker unless that person will provide
a good faith estimate up front.
3. When can I lock in the interest rate, and what
will it cost me to do so?
The interest rate of the mortgage you're applying for may go up
or down between the time you apply and the time you close. That's
why you may want to lock in the rate for a specified period, rather
than let the rate float until the closing. Be sure to ask the lender
if there is any fee for locking in the rate and whether you can
also lock in points.
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4. Is there a prepayment penalty on this loan?
The prepayment question is most important for loan shoppers with
less-than-perfect credit because penalties abound in the subprime
lending world. But even conventional borrowers should ask about
any prepayment penalties that may apply. In some cases, they can
get lower rates by accepting penalties on their loans.
Find out the duration of any penalty period and how the fee would
be calculated. Some penalties are 1 percent of the loan amount;
others are equal to six months worth of interest. Some apply only
when you refinance or reduce the principal balance of the loan by
more than 20 percent; others also will kick in if you sell the house.
5. What is the minimum down payment required for
Depending on the amount of your down payment and its relation to
the price of your home, you might be charged different interest
rates or quoted different loan terms. Loans made at high loan-to-value
ratios can cost more than loans with larger down payments. Still,
customers with good credit who are willing and able to pay mortgage
insurance can get conventional loans with down payments that are
much smaller than 25 percent. You may also qualify for mortgage
insurance from the Canadian
Mortgage and Housing Corporation (CMHC), allowing you to purchase
property with as little as 5 percent down.
6. What are the qualifying guidelines for this
The qualifying guidelines can relate to your income, employment,
assets, liabilities and credit history. Some first-time home buyer
programs and government-sponsored loans have easier qualifying guidelines.
7. What documents do I have to provide?
You will need to provide proof of income and assets to get a mortgage
loan. Find out what documents will be required in your particular
situation by asking your lender.
8. How long will it take to process my application?
This varies from lender to lender. It often depends on how much
business your particular lender is doing and how much business the
market is seeing as a whole. When borrowers are knocking down doors
all over town, underwriting departments back up, appraisals take
longer to obtain and other bottlenecks develop. Get a realistic
estimate, and use that to figure out how long a rate lock you'll
9. What might delay the approval of my loan?
If you provide the lender with complete, accurate information, everything
should go smoothly. However, there could be a delay if the lender
discovers credit problems, which is why it is critical to get your
credit in order.
Bruce Gillespie is a freelance
writer and editor in Simcoe, Ontario.