It is natural to be focused on the dollars and interest points when shopping for a loan. After all, you want the best possible deal that will have you paying the least in fees and interest. Right? Not necessarily. While the financial implications of a loan are essential, you also want to ensure you’re working with a lender who will act decently and treat you as a valuable customer. Be confident in your value as a client and interview loan officers before committing.
What Questions Should You Ask A Loan Officer? Ask your loan officer the questions below and use their responses to decide which lender you should work with to purchase your property. If you do not like the answers, a loan officer gives, don’t be afraid to move on until you find a lender who is aligned with your needs.
Too many of us feel overly grateful to lenders for approving loans and this can make the relationship one-sided and unbalanced. Remember, your business is worth thousands, if not hundreds of thousands of dollars to a lender. So find out how to choose a lender and how not to feel like they are doing you a favor by taking your money.
Why You Should Ask Questions
It is important to reframe the lender/borrower relationship in your mind before you get into the process of shopping for a loan. A good loan officer will ask plenty of questions to offer you the best possible advice for your circumstances. Likewise, a good borrower will request their prospective lender plenty of questions to ensure that any resulting business partnership is equitable and appropriate for both parties involved.
Your lender is taking a calculated risk when offering you a loan. They are not being nice or doing you a favor. You have every right to shop around, interview multiple loan officers and choose the one that is right for you. This is especially important when you take a look at the things that could go wrong.
What would happen if you were suddenly diagnosed with a serious illness and had to take time off of work? Would your lender work with you or would they just blindly demand the regular monthly payment and takes steps to foreclose as soon as possible?
On the positive side. How about if you were to win the lottery or come into an unexpected lump sum? Would there be financial penalties for paying off your mortgage early? What about if you find yourself with a higher income? Could you make larger monthly payments or would this cost you more in the long term?
Having said that, it is not all about the financials. Wherever possible you want to find a loan officer at an institution that provides a decent standard of customer care. This is unlikely to be your one and only mortgage. You may also find yourself refinancing, applying for home improvement or home equity loans, lines of credit, or other financial products. This is generally easier when you have an established relationship with a lender so be sure to choose someone with an eye to working together in the long term. You’ll be glad you made the effort.
How Do You Find A Loan Officer?
If you have no idea where to start your search for a loan officer I can tell you one thing to avoid. Do not Google “find a loan officer in” and add your location. You will be given a mixture of loan officer job postings, loan officer reviews on sites that do not check the quality or source of a review and paid for listings that have nothing to do with who is best for you.
The best place to start is the bank at which you are already a customer. Look everywhere you have an existing account and set up meetings with their loan officers. The downside to this is that banks rarely offer the most competitive rates so this should always be your starting point, not the only place you review. You can always end up back at your bank if, after interviewing a few other loan officers, you feel they are right for you.
Family And Friends
Next up are friends and family who have recently purchased a home. I have added recently because your auntie and uncle who bought their forever home forty years ago from bank X aren’t really going to be able to say much about the company today. Don’t just look at the positive recommendations either. Be sure to check in with your circle, who they have had negative experiences with and why they would not recommend them.
Last, but by no means least, is your real estate agent or broker. If you are working with an agent you truly trust and let’s hope you are, you can rely on their experience with a range of clients and lenders.
This is especially true when you are working with an experienced local real estate agent because they will not only have worked with many clients, and have recent experience in the local market, but they will also have an extensive professional network upon which they can draw for knowledge and advice.
Your agent will also already be aware of your needs and personal circumstances and may be able to save you the time and trouble of speaking with loan officers who would be unsuitable for your situation.
21 Questions To Ask Your Loan Officer
Once you have your list of prospective loan officers, you can set up appointments with each of them. Write down your questions so that you know you have asked everything you need to know. Sometimes you miss a question, think of a follow-up, or need clarification on a point after the interview. If this is the case, don’t be afraid to phone or email until you are comfortable you have everything you need to make a decision.
Which Type Of Loan Is Most Suitable For Me?
This one will help you find out if the loan officer cares about getting the right product for you or is a salesperson focused on turnover. You will already have an idea if this is the case if the loan officer starts giving you options before speaking with you about your needs.
Ask the loan officer questions about specific types of loan and what they would mean for you, in your particular situation. Types of loan you might ask about include:
- Fixed-Rate Loans
- Adjustable-Rate Loans
- Interest-Only Loans
- Negative-Amortization Loans
What Documentation Do I Need For A Loan?
This might seem like the kind of thing a loan officer would tell you without prompting. However, it is surprising the number of loan officers who assume you know this information. Either that or they are so familiar with the process they forget not everybody has the same level of knowledge.
Ensure you do not waste time with an incomplete application. Instead, ask your loan officer to give you a list of what you need to apply for a loan.
Do You Approve Loans In-House?
Your loan officer isn’t the only person in the “approve or reject your application loop.” The loan officer meets with you, advises you and helps you through the application process. Your application then goes to an underwriter who will verify all of your details and determine if you are qualified to take on the mortgage.
The first stage in underwriting may be automated and is a basic check to see if you, in principle, qualify for the loan. If you pass this stage, the application goes onto an actual underwriter.
If underwriting is done off-site, you can expect additional delays if there are questions about your application and less flexibility in the terms and conditions of your loan offer. Meanwhile, if the lender does their underwriting in-house things may be different.
In-house underwriting makes it more likely that, if there is a red flag or a grey area in your application, the underwriter will have a chat with the loan officer to determine if they have any flexibility. This can be especially important if there are questions about your employment history, a blip in your credit record or some other temporary issue that might have a long-term impact on your financial record.
When it comes to VA and FHA loans, some lenders have government approval to approve or reject an application without sending it to the FHA or VA. This can significantly speed up the application process.
How Much Down Payment Will I Need?
Lenders prefer their borrowers to have a 20% down payment but this is not set in stone and different loan products have different requirements. Some buyers can obtain a mortgage with as little as 3-5 % down.
The good news is that you do not have to have a perfect financial history to qualify for a lower down payment. FHA loans have a 3.5% minimum down payment and VA loans start at 0% down. The only thing you need to check, before you try for one of these mortgages is that most of them require a credit score of at least 620.
Will I Have To Pay Mortgage Insurance?
If your down payment is less than 20% then the likelihood is that yes, you will have to pay mortgage insurance. If you do have to pay it, ask if it is an upfront charge on an ongoing cost. You need this information because some lenders charge you a monthly premium while others tell you it is “lender paid” while the cost is actually rolled into your loan.
Do I Or The Property I Want To Buy Qualify For Any Special Programs?
The number of special programs designed to help people afford to buy their home is now in excess of 2500 across the country. Some loan officers do not want to bother or do not have the knowledge to help you investigate these possibilities.
If your loan officer is unwilling or unable to investigate and possible assistance programs, cross them off of your list and move on.
What Will My Monthly Payment Be?
This may seem like a no brainer but some loan officers are very adept at throwing out lots of figures. They list items separately so you think your monthly payment will be $X when, in fact, it turns out to be $XXXX.
Do You Have An Origination Fee?
An origination fee is a charge made by the lender for setting up your loan. Paid by the borrower at closing it is usually between 0.5% and 1% of the loan amount. So on a $250,000 mortgage, you will pay between $1,250 and $2,500.
Because the work involved in setting up a $200,000 is the same as that to set up a $500,000 you may be able to negotiate a lower origination fee on higher loans.
What Other Lender Fees Will I Pay And How Will They Be Applied?
The fees for a mortgage are determined by a number of factors. Your credit score, your loan type, the length of your mortgage, they all affect the fees. The fees will also vary according to which loan option you go for.
You cannot avoid lenders fees but you can ask for the details for each loan option to be clearly set out. This way you can compare “like for like” before you commit to borrowing from a particular lender.
What Other Costs Will I Pay At Closing?
The costs associated with buying a house are many and varied. There are charges for third-party work such as the appraisal and the home inspection, as well as things like property taxes, and the title search.
All of these costs will be detailed in the “Closing Disclosure” that the lender must give to you a minimum of three days before signing. However, if you want to shop around and compare the entire cost of borrowing with each lender, you will need this information before you apply for your loan.
What Is The Interest Rate And The Annual Percentage Rate (APR)?
The APR of your loan is determined through a calculation which includes your lender’s fees and your interest rate divided by the term of your mortgage. Knowing the APR will help you compare the loan offers but you should keep in mind that there is no way to calculate the APR accurately for an adjustable rate loan.
What Discount Points Are Available?
The majority of lenders offer “points” as a way to lower your interest rate. Basically speaking each point costs you one percent of the loan amount. So for a $250,000 loan, one point would be $2,500. However, one point does not equate to one percentage point off of your mortgage rate. Each lender works differently so you will have to ask about their system, by how much your points will reduce your monthly payments, at what point you will breakeven on the cost of your points and how much you will save in interest over the life of the loan.
Do You Offer Loan Rate Locks?
If you are worried about rising interest rates raising your mortgage payment, or want to know for certain how much you will have to pay each month, you can ask your loan officer if they offer rate locks. If the answer is yes then you will also have the following questions to ask your loan officer:
- Do you charge a fee to lock in my interest rate?
- Does the lock-in protect all the loan costs?
- For how long will you lock in this rate?
- Will you give me the loan lock in writing?
How Are Variable Rate Loans Adjusted?
It is an often overlooked question but the answers can have a significant impact on the amount you pay over the term of your loan. Specifically, you will want to know:
- How often is the payment interest rate adjusted?
- How much notice do we receive of an interest rate adjustment?
- What is the maximum annual adjustment?
- What is the highest cap on the rate?
- Is there a minimum cap on the rate if interest rates plummet?
Is There a Prepayment Penalty?
Some states no longer allow lenders to charge penalties for the early repayment of a mortgage. If you are in one of the states where it is still allowed, remember that refinancing your home will count as an early repayment and if you move to another lender you can end up paying a large amount for the privilege.
What Costs Are Associated With Each Of Your Recommended Loans?
The associated costs can differ from loan to loan with the same lender. Once you have discussed your situation ask for a break down of the cost of each loan you are considering.
How, And How Often Will I Be Updated On The Progress Of My Application?
You should establish who it is you should contact if you need an update or have a question, as well as the best way and time to contact them. It is also important to establish your expectations as far a communication from the loan officer is concerned. This way there is less chance of a breakdown.
What Is Your Timeline For Processing My Loan?
The average loan takes between 21 and 45 days to process. When it comes time to write your purchase contact you will need to establish a closing date.
Is There Anything I Shouldn’t Do During The Processing?
Many a home loan has been destroyed by a borrower rushing out an buying furniture on credit or making inquiries about lines of credit for home renovation etc. Each of these actions can be accompanied by a hard credit inquiry which will affect your credit score, potentially affecting your ability to secure your loan.
Will You Provide A PreApproval?
While it is not a guarantee that you will be successful in your mortgage application, a pre-approval at least lets you know how much you can realistically expect to be granted. It is also useful for sellers who, when faced with two identical offers will generally go for the one that is most likely to go through and having a pre-approval puts you in that pile.
You also need to know for how long your preapproval is valid.
Am I Likely To Qualify For The Loan I Want?
Approximately 11% of applicants have their loan application turned down. To minimize the possibility of this happening you can ask your loan officer outright is there is a likelihood that you will be approved or if you are likely to be turned down.
Interviewing loan officers, asking all of them the same questions, and obtaining documents that allow you to compare loan products, you will equip you with a ton of knowledge. This will enable you to make an informed decision and choose the loan that is best for you.
About The Author
Geoff Southworth is the creator of RealEstateInfoGuide.com, the site that helps new homeowners, investors, and homeowners-to-be successfully navigate the complex world of property ownership. Geoff is a real estate investor of 8 years has had experience as a manager of a debt-free, private real estate equity fund, as well as a Registered Nurse in Emergency Trauma and Cardiac Cath Lab Care. As a result, he has developed a unique “people first, business second” approach to real estate.
This article has been reviewed by our editorial board and has been approved for publication in accordance with our editorial policy.