Questions to Ask Your Lender (cont)

January 17, 2008
Yesterday's questions concerned the various types of lenders that offer real estate financing. To the borrower, it is probably not critical which type of lender is being used. To me, as a borrower, I would want to be certain that the lender I am using is licensed in the state of California and that the lender has been in the business for a least five years - more years would be preferable.
The questions today concern the type of loan being considered.
1. What is the interest rate being offered and is it a fixed rate or a variable rate?
Is this rate the best possible rate available to a person with my credit score?
(Rates can vary depending on a borrower's credit score.)
2. Will the interest rate being offered be "locked-in" and, if so, for how long?
A question to accompany this could be "Do you see interest rates rising or
going down during my loan processing time? If you "lock-in" a rate, usually
for a 30 day period, the lender will honor the locked-in rate if rates go up.
However, if rates go down, most lenders will still require the loan to be
written at the locked-in rate.
3. What would be my Annual Percentage Rate (APR)? The APR is the cost of
credit and includes the interest rate plus all other finance charges. If the APR
is .75 to 1 percentage point higher than the interest rate you were quoted,
there are significant fees being added to the loan.
4. What other costs besides the lender fees will I be required to pay? These
other costs may include points, prepaid items such as taxes, insurance and
prorated interest costs until your first monthly payment is due. One point is
equal to 1% of the loan amount. Other fees will be title insurance and escrow.

Tomorrow, I shall suggest the questions to ask about the details of the loan itself.