Home > 2013 > Mortgages

5 Things Homebuyers Forget to Ask Their Lenders

Advertiser Disclosure Comments 2 Comments

Getting a mortgage can mean keeping track of a lot of moving parts. Savvy shoppers know to ask lenders about interest rates, closing costs and how much they can borrow. But even seasoned buyers may not know to dig a little deeper.

Here’s a look at five key things homebuyers often forget to ask mortgage lenders:

What’s the Annual Percentage Rate?

Interest rates get advertising attention, but you need to pay equally close attention to the annual percentage rate (APR).

The interest rate, or note rate, is stated on the mortgage note and is used to calculate your monthly payments. But it may not reflect the overall cost of borrowing.

Let’s say Lender X offers you a 30-year fixed rate mortgage at 4.5 percent interest. Lender Y offers the same mortgage for 4.25 percent. This would seem to be a no-brainer. But we’re missing some key information, namely all the other costs associated with the loan, from closing costs and origination fees to mortgage insurance and more. Lender Y may have the lower rate, but this loan could cost you more in the long run if their costs and fees are higher.

That’s why you need to look at the APR, which factors in those costs beyond just your interest rate. It’s also why lenders are now required to disclose APR. Otherwise, they could hide fees and charges behind an incredibly low — yet ultimately misleading — interest rate.

Do I Have to Escrow Taxes and Insurance?

Homeowners paid on average about $800 per year for homeowners insurance in 2008, the most recent year for which data is available, according to the Census Bureau. The average property tax bill that year was $1,200.

A lender may require you to escrow funds to cover those bills. Instead of writing a $1,200 check at year’s end to pay those taxes, a lender will have you split that total into 12 equal payments. Your mortgage payment would include that month’s portion of your property tax and homeowners insurance bills.

The money sits in an escrow account until your lender pays the bills on your behalf. Some homeowners would prefer to pay those bills all at once rather than part with a portion each month. Whether you have to escrow funds can depend on where you live, your loan-to-value ratio and other factors.

Is There a Prepayment Penalty?

These have gone out of vogue in the mortgage industry. But you really don’t want to be the exception. Ask lenders if there’s any financial penalty for paying off the mortgage early.

A clause like this could potentially impact your ability to refinance or even sell the home. The good news is government-backed loans like FHA and VA loans don’t allow prepayment penalties as a rule. Fannie Mae doesn’t purchase mortgages with prepayment penalties, and Freddie Mac will follow suit beginning next month.

Is There Anything I Shouldn’t Do Before My Loan Closes?

Don’t confuse loan preapproval with loan approval. Lenders will double-check financial information, employment status, credit scores and other important metrics before giving your loan a green light.

Don’t change jobs if you can help it. Don’t move lots of money around, or suddenly make big deposits. Save your furniture-buying spree for after your loan closes. Any changes to your credit or your overall financial stability can spell major trouble for your credit file.

If you absolutely have to make a major change, be sure to update your loan officer as soon as possible.

Who Will Service My Loan?

It’s kind of jarring for some first-time homebuyers, but you may not send your mortgage payment to the lender that originated your loan. Many lenders sell their loans and the right to service them. Companies are legally required to notify you regarding these kinds of changes.

The mortgage servicer will receive your monthly payment and manage your escrow account for taxes and insurance. This is also the entity you’ll turn to if you run into problems paying your mortgage on time.

This isn’t uncommon or a harbinger of trouble. Loans and servicing rights get sold all the time. But it’s important to know who will be responsible for processing your payments and ensuring your bills get paid on time.

Image: Fengyuan Chang

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

  • Pingback: 5 Things Homebuyers Forget to Ask Their Lenders | Best Credit Repair()

  • Pingback: 5 Things Homebuyers Forget to Ask Their Lenders | PayDayCashLoansPronto.com()

  • Pingback: Friday's need-to-know money news | Ask Liz Weston()

  • http://ileaseandbuyhouses.com/ Gerald Harris

    Great Article Chris! Being a former agent i do not remember alot of homebuyers asking me about prepayment penalty or Interest Rate. Actually as a loan officer in past times I remember my former broker specificaly training us not to bring up or focus on Rate when it comes to a mortgage loan, instead, focus on relationship. There was a young lady in our office where was excellent with people, but knew nothing about Loan Origination. As a result, she made 20k per month. In all, anyone reading this article who is considering buying a home should follow the steps pointed out above. They are very informative and they are right on! Thanks!

  • Pingback: 5 Ways to Make a Mortgage Move Faster | Best Credit Repair()

  • George

    I get hounded by VA loan mogage folks wanting to refi my VA loan.
    I ask them very simple questions and none have EVER answered me directly.. What is the rate with NO buydown.. Also what will it COST ME to refi using a streamline va loan…
    Try to get straight answers from any refi folk and see what happens…

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team