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1. Lender and contact information: Keep track of whom you talk to, so that you can speak to that loan officer if you decide to use that lender.
2. Mortgage type: First, decide which type of loan you want: fixed or ARM, 30 or 15 years, etc. Then, be sure to compare that same type of loan with all the lenders you speak to.
3. Interest rate and points: Since interest rates can change every day, try to call lenders all on the same day and write that date down. If you compare annual percentage rates (APRs), you will be comparing figures that roll in all points and closing costs. While this gives you a common reference point, you still have to consider the entire package of points and closing costs before deciding.
4. Down payment and mortgage insurance: Depending on how much of the purchase price you pay as your down payment, your lender may require you to get private mortgage insurance (MI). Typically, the less you give as a down payment, the more likely it is the lender will require you to purchase MI. If so, ask how much you must pay up front for the MI, whether you can finance these up-front costs, and how much your monthly MI payment will be. In addition, find out whether you can stop paying MI once you build up equity in your property, and what you have to do to cancel MI.
5. Early repayment penalties: Most people sell their homes or make extra repayments of principal before the end of the loan term. Some lenders charge a prepayment penalty if the loan is paid off early. Find out whether the lender charges such a penalty, how much the penalty is, and whether the penalty applies only for the early years of the loan.
6. Closing costs and fees: You will have to pay some costs and fees at the time of the closing, but the amounts of these costs and fees can vary significantly among lenders. Be sure to ask about all the types of fees listed in the chart.
7. Loan processing time: It can take as much as 30 to 60 days for a lender to approve and close on a loan, depending on how many loan and refinancing applications the lender is considering. Finding out in advance how quickly the lender can act will help make sure that your purchase and closing go smoothly.
8. Lock-ins: To "lock in" a rate is to get a guarantee that the lender will hold the quoted rate for a period of time. Find out if points as well as rates can be locked in, when the lock-in takes effect, how long it will last, whether there's a charge for locking in, whether you will have a guarantee in writing, and what happens if interest rates actually drop while you're locked in.
9. Calculation of the rate: On an ARM, the interest rate is calculated by taking some financial index and adding on an extra margin. Find out about both pieces of this calculation.
10. Starting interest rate: Make sure that the starting rate you are quoted is the actual indexed rate (that is, calculated using your typical rate formula) rather than some special introductory or "teaser" rate that will increase after a short period. Once your real rate formula kicks in, a low teaser rate can become unmanageable if you are not careful.
11. Rate adjustments: Find out how often your interest rate can be adjusted, and how soon these adjustments will start. Also, be sure to find out how much the interest rate can change with each adjustment, and how far the rates can move (both up and down) over the life of the loan.
12. Payment caps: These are not the same thing as interest rate caps. Payment caps mean your monthly payments will not go above a certain level; however, they do not necessarily mean that your interest rate is capped as well. If your payments are capped but your interest rate keeps rising, there will be extra interest, and your may not be paying it all off with your capped payment. This unpaid interest will be added to your loan balance, and you will owe more and more each month rather than less and less. This is called "negative amortization," and you generally want to avoid it.
13. Conversion to a fixed-rate loan: Many ARMs can be converted within a certain window (typically, the first five years of the loan) to fixed rate loans. You may pay higher costs (or an extra point) for this feature. Find out about the costs and terms of conversion, and compare these to the costs of a straight refinancing to figure out whether the conversion option is worth the extra expense.
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