3 Top Questions To Ask Potential Mortgage Lenders

People about to buy a house rarely buy the first one they see. Most want to look around and see what the local market has to offer before settling on one. Similarly, you should never settle for the first mortgage lender you find. Mortgage lending is a very competitive business, so shopping around could net you a better deal. Here are the 3 top questions to ask potential mortgage lenders that could save you a bundle of money.

1. What is the interest rate and how soon can I lock it in?

Interest rates can vary from day to day. In some cases, that variance can be quite great. When a mortgage lender gives you a quote, it is based on that day's prevailing rate. If you wait and shop around, you could lose that rate and get a different one should you decide to go with them later. Even a quarter of a percentage point, over the 30 years of a mortgage, can add up quickly.

Ask what the current interest rate is and how soon you would be able to lock that rate in. There may be a cost involved, such as 1 point. A point is 1% of the loan amount. So, if your loan amount if $100,000, a charge of 1 point would cost you $1,000. Some lenders charge zero points for a rate lock.

Locking the rate in will guarantee that if you take a few days to make a decision, you won't end up paying more should you go back and choose that lender, even if interest rates have climbed.

2. Are there prepayment penalties?

In the event that you should pay off your mortgage early, some lenders have language built into the contract that says they can collect prepayment penalties. These penalties can be up to six months of unearned interest that you will have to pay to them simply for paying your mortgage off early.

Early payment doesn't just include suddenly paying the balance of your mortgage off in cash. Should you decide to refinance later, that is technically considered paying the original mortgage off, so the prepayment penalty can kick in. If you sell the home before the mortgage is paid off, that could also result in the enactment of the prepayment clause.

Some states have made it illegal to have prepayment penalties, so check and see if that is the case where you live. If prepayment penalties are allowed, ask the lender if they charge any and how much it would cost. Also keep in mind that if the lender does charge prepayment penalties, the trade-off is that some may require a lower down payment or give you a better interest rate.

3. Will You Guarantee Your GFE?

GFE stands for Good Faith Estimate. In the mortgage business, lenders are required to give you a good faith estimate in writing that gives you a rundown of your total cost. This includes closing costs, which can be expensive.

A GFE does not have to be guaranteed by the bank. Therefore, if you come back a day or two later to sign, the estimate could have changed. That is why you want them to guarantee the GFE, so you can leave with peace of mind that you know the total even if you need a day or two to think it over.

If the bank refuses to guarantee the rate, you can leave and find someone else who will. There are many banks who will guarantee GFEs. It is usually better to go with someone who guarantees their product rather than someone who won't.

Fred Mauz is a financial blogger who writes about a variety of current topics including the wounded economy and the state of refinance mortgage rates. He enjoys learning as much as he can about Forex trading as well.