What to ask when comparing mortgage lenders

The mortgage rate and fees you pay when you buy a home can vary dramatically among lenders. The rate lenders charge is based on a number of factors, including the buyer's credit score.

Charges are also based on the type of loan you get — fixed rate vs. adjustable rate. There are also closing costs and possibly points, prepayment penalties and private mortgage insurance to consider.

Here's a checklist to help you determine the lender and options that are best for you.

Lenders offer a variety of loan types and terms to fit a homebuyer's financial situation and lifestyle.

• Is it better for me to be on a 30-year, a 15-year or another term of payment?
• What down payment is required?
• What is the debt-to-income ratio requirement to qualify for a loan?
• Can I use gifts to fund the down payment?
• What is the best interest rate being offered?
• What is the annual percentage rate?

Add up the specific costs you will pay for the services necessary to close, such as appraisal fees.

• What are the total closing costs?
• What will I be charged for underwriter fees?
• What are the fees for an appraisal?
• How much would I pay in private mortgage insurance, or PMI, if any?
• What is the estimated monthly mortgage payment, including property taxes, insurance and PMI?
• How much can I reduce my payment per point paid (lowering the interest rate for a lump sum upfront)?
• What is the maximum I'd pay for points?
• Are there any lender-specific offers/discounts?
• What are the fees for making a late mortgage payment?
• Can I skip a payment without penalty?
• Is there an early payoff penalty?
• Is there a discount for autopay?
  

Fixed-rate mortgages maintain the same interest rate for the entire loan term. Shopping could help you secure a lower rate and a lower monthly payment.

• What are the different rates lenders charge for points?
• What are their closing cost estimates (which may be higher for lower-rate loans)?
• What are the options for private mortgage insurance and the terms for canceling it?
• Which lenders have the best customer reviews?
• Are there any terms of the mortgage that I can't accept, such as a penalty for early repayment?
  

As the name implies, adjustable-rate mortgages, also known as ARMs, are characterized by their variable interest rates.

When you take out an ARM, you lock in one rate for a set period, such as five or seven years. That rate is usually lower than the one you would get with a fixed-rate mortgage.

However, after that period lapses, your rate will move according to the market benchmark your lender has chosen — the U.S. Treasury rate, for example. Depending on how that benchmark is performing, your rate will change at a set cadence, usually once or twice a year. For example, a 5/1 ARM would have a fixed rate for five years, and then it would adjust annually. You can also finance an adjustable loan into a fixed loan.

Start with the checklist items for fixed rates, and add:

• What is the rate linked to, and how often does it change?
• Will a lender freeze the rate for a specified period before the loan is approved? For example, lenders often take several weeks to review an application before approving a loan. During this time, interest rates may change, rising or falling. In response, some lenders will lock in the interest rates while they consider the application.

Pro tip: The future of the economy and interest rates is hard to predict. A first-time homebuyer could play it safe by sticking with a fixed-term loan.

It's important to know how a lender will handle issues during the life of the loan.

• What is the contact information for customer service?
• Will the lender service my loan?
• How long does the loan approval process take?
• How will you keep me updated during the process?