If you want the best deal possible in a business situation, start by asking the right questions. The things you ask your Loan Officer can help to guide your conversations and ultimately result in a great transaction. Your LO wants you to be happy. He or she would love for you to leave the closing table feeling good. Where to start? Try the following seven questions to get the ball rolling:
1. If I pay some things off before you pull my credit report, could I get a better interest rate?
The answer here is dependent on your current credit. Start by finding out exactly what’s on your report. Go to www.annualcreditreport.com for your free yearly copy. It will show all open accounts and all closed accounts for the past several years. The report will also list any bankruptcies, judgments, liens, and previous credit pulls. It’s good practice to bring a copy of your free report to your first meeting with your LO He or she can advise on what to pay-off, close, and/or dispute before the lender initiates their actual credit inquiry. Your free report won’t show your FICO score but it will offer a host of information to help you prepare for your loan application.
2. How long should I wait after a major financial blunder before I apply for a loan?
A good rule of thumb is to wait two years after a bankruptcy, foreclosure, short sale, etc. before applying for a new mortgage. The two-year rule assumes that during the waiting period you pay your bills on time and display great character when it comes to credit. Some borrowers may be advised to wait up to four years before applying for a mortgage if a more conservative loan product best fits their needs. If you must apply for a loan sooner than advised then the underwriter is likely to place you in a subprime risk category, resulting in a higher rate and/or tighter loan terms.
3. Are interest rates trending up or down?
It’s impossible to predict exactly what the mortgage market will do, but a good LO will be educated in this area. Find out if your LO keeps tabs on market indicators and reads-up on analyst predictions. If rates are likely to move up before you move on, you may want to consider locking your interest rate. Conversely, a downward trend in the market might prompt your LO to advise a “wait and see” strategy.
4. Does the loan I want have a prepayment penalty?
Loan terms vary from product to product. One item to consider is the presence or absence of a prepayment penalty. Some lenders will impose a fee if the buyer pays off a loan early, especially if the payoff is the result of a refinance. If there’s a chance that you could move or refinance shortly after obtaining your new loan, discuss this with your Originator. Prepayment penalties are not inherently bad – they serve a purpose in the marketplace as they help to stabilize returns for secondary market investors. Just make sure to ask whether your loan has a prepayment penalty so there are no surprises down the road.
5. What will my total payment be if I go with the highest loan amount offered?
Lenders will offer you a loan amount based on your ability and likelihood to repay on time. This doesn’t mean you have to go with the highest loan amount offered. Some people who can afford Cadillacs still buy Corollas. And those people still have a nice car to drive. The same applies to a home purchase. Consider your total payment at various loan amounts before committing to your next home or refinance.
6. How soon can we close?
Most loans can closes in under 30 days and a large portion are 17 days or less. Some buyers and sellers need more time for a variety of reasons.
7. Last but not least, do NOT make any financial changes until you speak with a lender!
Ask your lender what items you need to focus on regarding bills to pay, funds needing to be saved, and planning for that next big step. Don’t assume the answer is to pay off that car loan or wipe out as much debt as possible to improve your credit score. Remember they are the expert and a good lender will guide you in the right direction to your next home, or your first!
“Successful people ask better questions, and as a result, they get better answers.” ~Tony Robbins