5 Big Questions to Ask When Comparing Lenders

There are a lot of mortgage lenders out there. On the upside, as a prospective homeowner you’re blessed with the gift of choice. On the downside, that choice can be tough. How do you narrow down your options? What are the factors you should consider?

First things first, do your homework. There are a lot of key details and answers that you can figure out on your own prior to actually meeting with a prospective mortgage lender.

Do a preliminary search of all the lenders in your area. Once you have a solid list, get cracking on your research. Personally, I recommend making a spreadsheet (or something of the like) where you can record the details per lender. Start with each lender’s website, but be sure to expand to other sites to read what others are saying about that particular lender.

Reputable sites such as the Better Business Bureau are a great way confirm the lender’s credibility and if they’re in good standing. If they’re listed and have positive reviews, they’re most likely a reputable choice. Additionally, every lender and mortgage banker are given a unique NLMS number. Through the NMLS Consumer Access, you can confirm that a company or individual is authorized to conduct business in your state. So that’s a great place to check, as well. Once you’ve filtered out who you don’t want, it’s time to set a meeting or phone call with the lenders who have made the cut so far. To prepare for your meeting, I’ve put together some critical questions to ask. Tip: During your discussion, pay attention to the manner in which the potential lender answers your questions. If you feel like they’re apprehensive to give you information or they are purposefully giving you vague, complex answers, you may consider scratching that lender off of your list.

1. What are your available loan programs?

Many lenders have multiple loan options. Be sure that they tell you all of the options, not just the ones they recommend. You have the right to consider all of your options.

2. What are your fees?

This is a biggie to many homebuyers. There are standard fees in the industry, and then there are fees that vary per lender. Be sure to distinguish the two, and ask the lender to give as much detail as possible per fee. For example, they should identify which are flat-rate fees, and which are fees calculated as a percentage of another figure.

Pay close attention to both the definition and timeline of each fee. It’s common to see the same fee called different things per lender.

Likewise, a lender may “waive” a particular fee, but in actuality it’s just deferred to later on at closing. For example, some may boast that they waive upfront application fees, but then charge a hefty “commitment” fee at closing.

3. Do you offer upfront underwriting?

Upfront underwriting is another term that goes by different names per lender. In short, upfront underwriting is where your lender can review your credit report and your income documentation, prior to even having a property address. With this process, you can be conditionally approved before you even begin house hunting. So you’ll know what you can truly afford before you start house hunting. Alternatively, a lender who only offers pre-qualification typically doesn’t verify income information until after you have a property address and ratified contract. They may give you an estimated loan amount that can greatly change later on down the road — perhaps after you’ve already set your heart on a home that’s now outside of your loan budget. As you can tell,upfront underwriting has its perks . Be sure to note which lenders offer this option, and ask each individual lender about their unique terms for upfront underwriting.

4. What is your average closing time?

Another critical question. You’d be surprised by the variation of closing times across the industry. As reported by Ellie Mae in March 2017, the average closing time was 43 days (the lowest it’s been since February of 2015). Use this figure as your baseline when comparing lender-to-lender, or lender-to-industry. Also, be sure to ask the lender when they last calculated their average closing time. If their average is higher or lower than the industry baseline, consider asking them why. What are they doing different? Is there a positive reason that the closing time is longer, and likewise is there a negative tradeoff to their shorter closing time?

5. What is your customer satisfaction rate?

Most lenders proudly display this figure. If it’s hard to find, or if they’re apprehensive to share their rating, consider that a red flag. Also ask how they calculate their customer satisfaction rating, and the date it was last calculated. You don’t want to base your decisions off of old figures.