Your loan officer has the power to grant or deny you the money to buy your dream home! He’s the one who can make your mortgage possible or deny your move altogether. He’s obviously an important person, and you should ensure that you have clear communication with him or her throughout your real estate transaction.
But too many buyers wind up with a massive mortgage and no real clarity because they don’t ask the right questions! Over half of first-time buyers admit that they were never clear on the options available to them.
Here is some clarity on the role of a loan officer and what kind of information he or she is supposed to provide at various stages of realty transactions. These are the questions people most often forget to ask their loan officer, but could make all the difference in your confidence as a new homeowner. This is all part of the smart things to do before getting a mortgage. Being well-prepared will increase your odds of the loan process going much more smoothly.
The role of a loan officer
In short, a loan officer is a representative from a bank, credit union, mortgage brokerage, or some other institution with a lot of money. The loan officer’s job is to assist you in acquiring the money for said loan. In the case of a home buyer, you’ll also need a specialized kind of loan officer called a loan underwriter. Don’t worry about finding an underwriter yourself, though; the primary loan officer will establish that connection. That person will oversee your full underwriting approval after analyzing and assessing your credit.
How to find a loan officer
There will be a lot of lenders fighting for your business when you start looking for a home loan. There are a lot of options, so feel free to be picky! Over the course of a 30-year mortgage, you’ll potentially spend hundreds of thousands of dollars (not on the house – just the loan!) so you deserve great interest rates and positive customer service.
The first places you’ll want to check for great loan programs are the banks where you’re already a customer. Anywhere you have a checking or savings account set up, see what special deals they can offer their existing customers. While a solid starting point, many professionals don’t recommend going through a bank because they rarely offer the most competitive rates.
After that, check with your friends and family who have purchased a home. They can either recommend or discourage the lenders they went through and tell you why.
Most importantly, however, you need to check with your real estate agent. If you’ve found an agent you can trust, then pay attention to their discernment. Realtors have been in the business for a long time and networked with local professionals. Your agent already knows your needs and limitations and can find you the perfect loan officer accordingly.
Most home-buyers end up going with a mortgage brokerage. Brokerages serve as a middleman to find you the best possible rates. They also have a lot of connections in the real estate industry. Your Realtor will know the brokerage options in your area.
Main questions to ask
As you start to shop around and gather recommendations for a loan officer, it’s important to know the basic questions to ask. For this, just think of P.I.T.I. This is the lingo among mortgage professionals for the basics of a home loan – principal, interest, taxes, and insurance.
Principal – Obviously, this is important. What is the dollar amount that’s being approved for this loan? Without taking into account any of the other fees or expenses, that’s called your principal.
Interest – The lender needs to make money off the loan, so this is the amount you’ll pay back in addition to the principal loan. Still pretty basic, right?
Taxes – You can pay your property taxes through your mortgage program, as well. This breaks up the sometimes-startling fee around tax time into manageable monthly payments.
Insurance – Most lenders will require hazard insurance on the property for which you’re taking out a mortgage. The insurance may not be through your lender, but you still need to be clear about how this expense will calculate into your loan payments.
Questions buyers forget to ask
Once you’ve covered the basics, there could still be a lot of ground to cover. Make sure you have all of your questions thoroughly answered before moving forward with any loan officer. Here are the questions a lot of people don’t know to ask:
- What documents do I need for a loan? There is some paperwork you need to have on hand any time you meet with a mortgage representative, but upon your first meeting, you may be asked to prepare additional documents. This is a really simple question that you can’t afford to overlook.
- What specialty/government loans do I qualify for? There are first-time homeowner programs, VA loans, and more that every loan officer needs to check on for you. There may also be programs through your state or bank that can help you qualify for better loans or interest rates.
- What are the lender fees? Sure, the lender gets paid through the interest on the loan. Many lenders, however, also have fees for their initial services. Calculate this out-of-pocket expense before you agree to any other terms.
- What’s the minimum down payment to qualify for the loan? The standard amount for a down payment is 20% of the cost of the real estate. However, with some qualifications, lenders will approve as little as 3% down.
- What are interest rates expected to do? Do professionals expect mortgage rates to plummet right after you buy? If so, maybe now is not the time to apply for a loan. Or just get an ARM instead of a fixed-rate loan.
- Is my rate locked in? On the other hand, if interest is expected to rise after you purchase your home, ensure that your rate is steady. Check to see if lock fees apply to your locked-in rate!
- Does my approval have an expiration date? There could likely be a time limit on your loan approval, which would obviously light a fire under the home searching process.
- Are there any prepayment penalties? Doesn’t the term prepayment penalty sound terrifying? That’s because it is! Prepayment penalties are a way for the lender to charge you for paying off your mortgage early. Luckily these are pretty much an outdated concept, so you shouldn’t have to worry about running into them. If you do, it’s probably best to walk away and find a different lender.
- Is there a negative amortization option? You probably want the answer to this to be “no.” Negative amortization is a window of a payment plan to allow flexibility; you can pay the high or the low option on the bill. The trouble is, the money that doesn’t get paid when you opt for the lesser amount will gain additional interest, so you can end up paying way more than your original calculations. This option is more common in adjustable-rate mortgages than fixed-rate loans. However, like with prepayment penalties, it’s probably just best to stay away from this option altogether.
- How long will the loan process take? You have 100 different balls in the air during a real estate transaction, so perhaps the most important thing you need to know is how long it will take to process the application. Lenders may answer as low as two weeks, but realistically it could take up to two months. Whatever the answer, check with your real estate agent that the loan officer’s timeline is sufficient.
What borrowers forget to ask
Buying a home may not be the only time you work with a loan officer. If you ever refinance your home, you’ll be working with him/her again. In this stage of home ownership, there are still a couple of overlooked questions that you need to address.
- What do I need to know about prepayment penalty clauses? There’s that pesky term again! Even though prepayment clauses have been all but eradicated from the mortgage process, they are more likely to rear their ugly head during a refinance. Be clear on the terms, and again, don’t forget you can always walk away from a contract that penalizes you for diligent payments!
- Am I likely to qualify for the rate I want? 11% of people refinancing homeowners go through all the hassle of the process only to meet disappointment on the other side. Don’t be a part of that statistic. Clarify your goals with your lender before starting the process to ensure you have realistic expectations.
COVER YOUR ASSETS
The mortgage process can be the most overwhelming part of buying a home! However, when you’re prepared with the questions listed above, you show that you mean business. The questions people forget to ask their loan officer not only ensure the best principal and interest, but they guarantee you are unexpectedly fined or penalized down the road.