Ten Important Questions To Ask Your Loan Officer

There are ten important questions to ask your loa officer when you’re looking to obtain a new mortgage for the purchase of a home or if you are looking to refinance a current mortgage. Asking the right questions is the best thing you can do to ensure you obtain a low rate at great terms.

If the loan officer you’re working with avoids answering your questions or gives very vague answers, that should raise a red flag, and you might want to consider finding a new loan officer to work with.

I suggest you only seek out mortgage companies with an “A” or “A+” rating with the Better Business Bureau, have great online reviews, and have a loan officer with a minimum of five years of experience.

1. Does The Quote Include All Discount Points and Loan Origination Fees?

This question is number one for a reason. Many loan officers will leave out either Discount Points, Loan Origination fees, or even both from quotes they provide to potential clients.

The most common scenario is this; a loan officer provides a quote and says the loan has “zero points” even though the mortgage has loan origination fees. This underhanded way of quoting happens frequently.

To avoid this issue, always ask if the quote includes all discount points and loan origination fees.

2. What Are The Total Costs and Fees?

Did you know there could be zero points and zero origination fees, yet your loan still could have thousands of dollars in junk fees? This is why you need to ask what the total costs and fees are and have them email you in writing.

And then there are the loan officers that like to quote a no-cost mortgage rate, which ultimately has closing costs. An actual true no-cost mortgage rate (not a single penny in costs or fees) is available with some loan scenarios. However, some loan officers are just referring to zero lender fees (i.e., no underwriting and no credit report fee) when they say “no-cost mortgage rate.”

You need clarity on this because I’ve seen “no-cost” quotes with more fees than a traditional mortgage quote. So please make sure you ask what are the total costs and fees for the loan and ask to ensure they include everything.

Understanding your actual mortgage closing cost is essential. Make sure you clearly understand what you are paying to close the loan before you move forward.

3. Is There a Pre-Payment Penalty

If you’re doing a Fannie Mae or Freddie Mac Conforming loan, you won’t have a pre-payment penalty no matter what lender you use (as of 2023). And if you’re applying for an FHA home loan or a VA home loan, you won’t have a pre-payment penalty either (but still ask to make sure).

However, if you’re doing a Jumbo home loan, a Bank Statement Mortgage, a “portfolio” home loan, or a private money loan, then there is a chance you may have a pre-payment penalty. Also, second mortgages can sometimes have a pre-payment penalty.

Pre-payment penalties are usually from one to four years, and the cost to pay them can be pretty steep.

4. When Will The Rate Be Locked, And For How Long?

Some mortgage companies lock when you complete the application, some allow you to choose when you lock in your rate, and other lenders won’t let you lock in your rate until you’re ready to close the loan.

Ask your loan officer to clarify the loan lock policy because it is different for every lender. A great feature some lenders have with their rate lock is a “float down” policy.

This means that if you lock in your rate and interest rates fall (typically, they have to drop 0.25% or more) before you close, the lender will renegotiate the lock terms. They won’t give you exactly the current market, but they will offer something better than where you are locked.

5. Will This Rate Or Payment Ever Adjust, And If So, When?

Knowing if you have a Fixed Rate Mortgage (FRM) or an Adjustable Rate Mortgage (ARM) is very important.

If you’re looking for a fixed-rate mortgage, make 100% certain your loan officer confirms this and all your documentation says this as well (such as the Loan Application and Loan Estimate). Also, at closing, the Note and the Closing Disclosure should say “fixed rate” as well. If you’re getting an adjustable-rate mortgage, your initial disclosures and final loan documentation will clearly state this.

6. What Is The Loan Based On?

Here are the questions you should ask when the loan officer emails or calls you with the quote.

1. What is the max Debt-To-Income ratio?
2. What are you using as the home value, and what is the Loan-To-Value ratio?
3. Is this a Full Documentation Loan or Limited Documentation Loan (i.e., FHA Streamline Refinance)?
4. Do I need assets to get this loan, and how much?
5. What are the job history requirements?
6. What are the credit score requirements?

Having a clear understanding of what the loan is based on reduces the risk of terms being changed unnecessarily.

7. What Could Change The Rate And Terms You’ve Quoted?

This is an important question because there are legitimate reasons a mortgage rate could change. However, loan officers tend to abuse this and start making things up.

Things that typically affect a rate are:

• Your appraisal might come in low
• You have a Debt-To-Income (DTI) ratio that is too high
• You don’t have enough liquid assets.
• Your credit report expired, they obtained a new report, and your score dropped.

The appraised value coming in lower than expected is beyond the control of the loan officer unless they purposely misrepresented the estimated value.

If you have a $280,000 loan amount and you were estimating the value of your home to be $400,000 (a 70% Loan To Value ratio) but the appraised value came in at $365,000, you would end up seeing an increase in your rate and/or fees. The reason is that your LTV moved from 70% to 76%; the higher LTV results in more risk to the lender, which is why the rate (or the fees) increased.

8. Will My Mortgage Balance Ever Increase?

This is not a common thing; however, a critical question to ask.

It will also clearly state on your initial Loan Estimate (and the following ones) if your loan balance will ever increase. Avoid getting loans where your balance goes up or loans that have balloon payments. Ask the loan officer and review your Loan Estimate to make sure it clearly states your loan balance will never go up.

9. When Will You Send Out A Loan Estimate?

Never proceed with a loan or do an appraisal without receiving the Loan Estimate within three days of a completed application. Never. Second, understand that the Loan Estimate is an “Estimate,” and make sure you communicate with your loan officer if you see any changes that you were not expecting.

And if you thought your interest rate was locked, make sure you look on the first page, top right corner. The box next to “Locked” should be marked.

9. Who Is The Point Of Contact During the Process?

Make sure you clearly understand who the point of contact is during the entire process. Some lenders will pass you from one department to another during the loan process. It’s very inefficient and prone to creating mistakes. Talk with your loan officer about their process because it’s different for every lender.

If you worked with me, I would be your point of contact from day one until closing. We do not pass you from one department to the next. It’s much more efficient this way and provides a better customer experience.

10. How Long Will It Take To Get An Underwritten Approval And Close The Loan?

Super important to ask this, especially if you’re purchasing a new home. If you work with me, I can generally have a pre-approval done within 24-48 hours, an underwritten approval in three to five days, and close your loan in 21-30 days. Some lenders take 45 days or more to close a loan.