You’re most important task is to find knowledgeable, professional loan officers.  This step can be accomplished over several days or weeks, depending on your time frame. 

You are the CEO of your family and you are conducting interviews to find the appropriate person to advise your entire financial future.  While this may sound dramatic, your final choice of mortgage will impact your financial future and your choice of loan officer will determine the level of advice and counsel you receive.  I have prepared a Loan Officer Interview format to help you identify top-notch loan officers.

Industry knowledge. There are three simple questions that a loan officer absolutely must be able to answer correctly.  If they don’t know the answers then run, don’t walk, run to a lender that does.  The questions are:

What are mortgage rates based on?  The only correct answer is Mortgage-Backed Securities or Mortgage Bonds, NOT the 10 Year Treasury Note.  While the 10 Year Treasury Note sometimes moves in the same direction, it is not unusual to see them move in opposite directions.

When the Fed changes the rates, what impact does this have on mortgage rates?  The answer may surprise you.  When the Fed changes rates, they change a rate called the Fed Funds Rate which is a very short-term rate that impacts credit cards, home equity lines and short-term financing such as auto loans.  The Fed changes the short-term rates in order to heat up or slow down the economy.  Mortgage rates react to anticipated inflation.  If the overall economy is strong and there are inflationary concerns, the Fed will increase the Fed Funds  Rate to slow the economy down.  The mortgage market often reacts in the opposite direction because the long term interest rate concerns for future inflation have diminished.

What is the next Economic Report or event that could cause interest rate movement? A professional lender will have this at their fingertips.  For an up-to-date calendar of weekly economic reports and events, please call or email me.

Accuracy of costs and fees:

Will you provide a Good Faith Estimate (GFE) reflecting all costs to close (not just Lender costs) prior to a complete loan application?  You should not be required to complete a full loan application to receive an accurate Good Faith Estimate.  Even if the loan officer works for a company whose software cannot generate a GFE until a full application is received, the loan officer's knowledge should be such that they can calculate the Good Faith Estimate manually if necessary.

Do you provide an HUD-1 Settlement Statement for my review at least 48 hours prior to signing? The HUD-1 Settlement Statement is an accounting document that you sign at closing which reflects the final, accurate, closing costs and fees.

What guarantee do you offer that the costs I actually pay at closing (as shown on the HUD-1 Settlement Statement) will match my Good Faith Estimate (GFE)?   This is really important!  Federal lending law only requires re-disclosure if the fees paid at closing will differ from the GFE by .125% in Annual Percentage Rate or more.  In short, a loan officer can legally misquote their GFE by $6,250 on $500,000 mortgage without notifying you of the discrepancy until you sign your closing documents! Some states have disclosure laws that are more stringent than the Federal law, unfortunately, California is not one of them.

                  Will you put your guarantee in writing?

Availability to you as the client:

What days/hours do you work?  If they are a part-time loan officer, it is important to know that upfront.

What is your timeframe for returning phone calls?

What specific steps do you follow with a mortgage application? 
The answer should be:  Complete the application, request the necessary income and asset documentation, prepare mortgage options for your review, schedule an appointment to review the pros and cons of each option, submit the application with your mortgage choice to the Underwriter for formal approval.

What is your manager's name and phone number in case I can't reach you and need immediate assistance?  If they don’t want to provide this information, get very nervous.  No professional loan officer would hesitate to provide this information because they are confident in their abilities and service.

Additional questions for Purchase mortgages:

When you receive an executed purchase contract, what specific steps do you follow?  Hopefully they say, "read the contract, write down the contingency deadlines and Closing dates, update the Good Faith Estimate, order the appraisal and preliminary title, contact the Realtors, etc.

Double check their knowledge of the contracts by asking, “What is the California Purchase contract default timeframe for non-contingent Loan Approval?”  If you and the Loan Officer ultimately agree to work together, they must support your legal obligations under your Purchase contract.  It is important to know that they are familiar with the contractual deadlines or your Earnest Money Deposit could be at risk.  The default time frame for non-contingent Loan Approval is 17 days; however, many Realtors shorten this deadline as a negotiation tactic to make your offer more appealing to the seller.

How many purchase transactions have you closed in [City or County] in the last two months?  (If none, red flag!)

Could you please provide the names and contact phone numbers for the realtors on two of those transactions?  If they stumble, the claim they made in the previous answer may not be accurate.  If they do provide references, check them!  If you haven’t yet chosen a Realtor to represent you for a home purchase, this is a good opportunity to interview them as well as check the loan officer’s references.

At this point you are probably thinking "What a LOT of work just to get an interest rate quote!" and are right.  It is important to remember that this is your MOST IMPORTANT DEBT and it will impact the rest of your finances and your qualify of life.  Isn't it worth some time to make sure the information you receive is accurate?

Once you have identified two or three top-quality, professional loan officers, here are the rules and secrets that you must know to “shop” effectively.

First, understand that mortgage rates change daily, even mid-day when the market is volatile.  In order to have an accurate comparison, you must request a Good Faith Estimate from each lender on the same day.

Second, understand that interest rates and closing costs go hand-in-hand.  This means you can have a below market interest rate – but you will pay higher costs to get it.  You can also pay discounted or reduced fees, or no fees at all, but understand that it comes at the expense of a higher interest rate.  Either of these choices may be right for you or perhaps somewhere in between.  A professional loan officer will be able to help you find the correct balance for your personal situation.

Third, request a Good Faith Estimate (GFE) from each lender on the same day and specify the loan variables.  Interest rates and fees vary based on a number of variables.  In order to make accurate comparisons, you need to request a Good Faith Estimate from each loan officer on the same day based on specific variables YOU provide.  Do not provide your social security number and allow the lender to pull your credit report until you have made your final choice.  (Remember, Inquiries have an impact on your credit score).  The variables you should provide are:

·       Sales Price (or estimated Market Value, if a refinance)

·       Desired Lock-in time frame.  The most common are 30 and 60 days

·       Your Credit Score 

·       1^st mortgage amount (and 2^nd mortgage / Home Equity Line of Credit amount, if applicable)

·       Desired mortgage program (30 year fixed, 7/1 Fixed-ARM, etc.)

·       Desired payment type:  Interest-Only or Amortized (Principal & Interest)

·       Points (if any) to lower the rate:  this can range from 0 points to 2 Points (2% of the mortgage amount) or higher.

·       Prepayment penalty:  If you are willing to consider a Prepayment Penalty to lower your interest rate, the common options are a 1 year or 3 year prepayment penalty.  If you do not wish to consider a Prepayment Penalty, specifically state this.

·       Impound Property Taxes and Homeowner’s Insurance:  specifically state your preference.  This will have an impact on the total cost to close on either a Purchase or Refinance transaction.

Fourth, make accurate comparisons.  When comparing each GFE, don’t simply review the bottom line.  You absolutely must compare conduct a line-by-line comparison.  Lenders are responsible for quoting all fees associated with closing the mortgage transaction but some “third party fees” such as Title Insurance or Escrow may be under-quoted to present an artificially low bottom-line total.  Comparing the GFE’s line-by-line will help you uncover potentially understated fees. 

Fifth, if it seems too good to be true, it probably is.  Mortgage money and Interest Rates all come from the same sources.  While lenders may vary based on their efficiencies, a significant difference in rates or fees on GFE should be cause for serious questions rather than immediate celebration.  Did the lender forget and quote a Prepayment Penalty rate?  Did they simply under-quote knowing you aren’t really going to lock-in the rate yet?  Will undisclosed fees show up at closing? 

Be smart.  Ask questions.  Get answers.  Get every promise in writing.

Meet Wendy Cutrufelli, Certified Mortgage Planner, Realtor