What should I ask my mortgage lender?

As a borrower, you have the right to ask questions of any lender with whom you might do business. Before handing over your financials, ask the loan officer, mortgage broker, or online lender the following six questions:

1. Does the application fee include the credit report, or do I pay for that separately?

2. Approximately how much should I factor in for closing fees? (Your lender is required by law to give you a good-faith estimate when you apply for your loan, but your loan officer should also be able to provide an estimate of closing costs before you apply.)

3. How long have you been in the mortgage business? (Look for a lender with experience, who can walk you through the application process and help you work through any obstacles that might crop up.)

4. Can I get a preapproval letter to take with me on my house hunt?

5. Will I be able to lock in the interest rate at any time? (Interest rates change daily, and many lenders will give you the option of locking in a rate at any time.)

6. Will this loan have prepayment penalties? (Make sure that you can prepay your loan without incurring a penalty. There may come a time in the future when you will want to make additional payments to save money on interest.)

What are lenders looking for?

Let’s just say that if there are any financial skeletons in your closet, they’ll come out during the homebuying process. When reviewing your application, lenders typically look at the ‘‘four Cs’’ of credit—capacity, credit history, capital, and collateral—so come prepared to discuss and/or show proof of everything from past bankruptcies to alimony payments to credit blemishes, and everything in between. The individual lender has its own requirements, but the process generally starts at the credit rating and works backward from there. The better your credit, the less ‘‘other’’ documentation you’ll have to show.
At a minimum, you’ll need to produce the same information you did for the preapproval, then sit back and wait while the lender sifts through it. Be prepared to come up with additional documentation, such as proof of additional income, statements that show certain accounts were ‘‘paid off’’ even though it doesn’t reflect that on your credit report, and tax returns for the last two years if you’re self-employed.