LESSON 17: 10 QUESTIONS TO ASK AT APPLICATION TIME

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5. 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.

6. What is the minimum down payment required for this loan?
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 PMI can get conventional loans with down payments that are much smaller than 20 percent.

7. What are the qualifying guidelines for this particular loan?
The qualifying guidelines can relate to your income, employment, assets, liabilities and credit history, as discussed earlier. Remember that some first-time home buyer programs and government- sponsored loans have easier qualifying guidelines. See Chapter 4 for more details.

8. What documents do I have to provide?
You will need to provide proof of income and assets in order to get a mortgage loan as discussed earlier. Find out what documents will be required in your particular situation by asking your lender.

9. 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 need. See Tip 4

10. 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. See Tip 5

Tip 1: "When searching for a lender, question them. Formulate some vague questions about your particular scenario, and wait for a very specific answer. The right answer will tell you how competent a lender they are." Gary Altman, Capital Mortgage Services, Atlanta "Save money on your mortgage by choosing a company that has a wide array of product options to meet your needs. Remember, when shopping for a mortgage, the only things that should vary are lender fees. Items such as per diem interest, title charges, etc., should be the same no matter which lender you choose." Chet Neiss, BestPriceMortgage.com, Lancaster, Pa. Tip 2: "When loan shopping, compare a no-closing-cost loan to one where you pay the closing costs." John DeGuenther, American Home Mortgage, Inc., Atlanta Tip 3: Shorter-term locks are generally free, while longer-term locks cost money. If you want the absolute lowest rate/points combination available and don't think it will take you a long time to close, ask the lender to quote you the costs of a loan with a 15-day or 30-day lock period rather than a 60-day one. Tip 4:"Get quotes, fees and terms in writing before applying. Don't wait until the last minute to apply. Allow 45 days to go from application to closing to allow for any issues that may need to be resolved! Anybody can say they can close in two weeks but that rarely happens " Chris Weimar, Loan Search, West Orange, N.J. Tip 5:"Get the rate and payment that you're comfortable with and lock. It could get worse." John Waymire, Houstonmortgage.com, Houston Tip 6: "As you compare lenders, if you see a rate with low points, make sure you ask about the lender's fees. Lenders sometimes charge higher fees in order toi make up for the lower poijts. Remember that every $500 in fees is 0.50% in points per $100,000 loan amount." Kris Taraz, Inhouse Capital, La Jolla, Calif.