The 7 most important questions to ask your loan agent before starting the mortgage process

In Blown Mortgage’s 8 Step Program to save you $2,500 on your next refinance I advocate spending 20 minutes on the phone interviewing the loan originators you are considering working with. I recommend avoiding specifics about rates and programs; instead I believe you should use the time to get a true feel for the originator. This gives you important information to determine if they are the best fit for you and your needs.

What does that 20 minutes look like? I’ve prepared the 7 most important questions to ask your loan agent during that initial interview to help you determine if that originator is right for you. Ask these questions and take notes. Compare the the responses you receive from the different originators. Answers to these questions reveal key insights about the person you are talking with.

A couple of notes about these questions:

  1. They aren’t hard. These are no-brainers for serious loan agents. If the person you are speaking with can’t articulate a sound answer to the questions below they are either lying or are incompetent. Either way avoid them like the plague.
  2. They are meant to elicit genuine response. If you get some canned sales pitch instead of a true answer rephrase the question and keep going until you are satisfied that you’ve received an honest reply.
  3. These questions alone will not protect you from unsavory mortgage lenders. There is no one magic bullet; what we are doing is developing a series of tests and requirements that together build a system that helps protect you and delivers an excellent mortgage. No one element stands up to this challenge on its own.

Here are the questions – print them out and take notes for each of the three referrals you have chosen to interview from step 1 of the 8 steps to saving $2,500 game plan.

  1. How are you compensated?
  2. How long have you been in the mortgage business, in what capacities?
  3. Do you have two (or three) customer referrals that I could speak with directly?
  4. What is your lending and personal business philosophy?
  5. Have you completed any licensing or continuing education?
  6. What documents do you customarily provide to your your clients during the loan process?
  7. Which lenders do you use and which loan programs made up the majority of your originations last year?

There you have it – 7 simple questions that will help you unlock the riddle that is your mortgage originator. Let’s take a look at what responses to those questions should look like. Please note that many of the comments below could easily be follow up questions to the main 7 that let you probe deeper on each topic.

1. How are you compensated?

We don’t really much care if they are compensated by commission or by salary. In fact I would argue that a commissioned loan agent will work harder to see your loan through quickly when compared to a salaried loan agent. What we are looking for here is the following:

  • Honesty and confidence in sharing compensation.
  • An understanding of fees charged by the originator, charged by the broker or lender, and those charged by the investor and other third parties. This will help us in our negotiation later in the process.
  • An understanding of their compensation via yield spread premium or bonuses awarded for selling a particular type of mortgage product.

2. How long have you been in the mortgage business, in what capacities?

We are looking for experience in the industry. I set a minimum at 2 years. I would typically choose someone with more experience. The reason you want someone with experience is that the experienced person tends to have a better grasp of product and underwriting guidelines which will be to your benefit when your loan is structured and submitted for approval.

Using a green mortgage originator can cost your thousands of dollars simply due to their lack of knowledge of underwriting and program guidelines. Rookie originators tend to pitch the easiest-to-qualify mortgage products which also happen to be the most expensive.

Understanding the capacities that originators have served in also helps you get a better understanding of their level of expertise in the industry. An originator who has been an underwriter may not be the smoothest salesperson, but they may be the best at getting your loan approved and funded quickly.

3. Do you have two (or three) customer referrals that I could speak with directly?

This should be a softball to a customer-oriented loan originator. They should have 3 names that they can give you along with phone numbers that put you in touch with past clients.

Red Flag #1: The originator can’t give you 3 names and numbers.

Red Flag #2: It takes the originator more than 10 minutes to name 3.

You don’t care about published testimonials. You want real people that you can talk to that will go to bat for the loan agent as a service provider. You want to ask your own questions and form your own opinions. If they can’t deliver these people, move on.

4. What is your lending and personal business philosophy?

People that are good at their job and take pride in their work have a personal philosophy that drives them and their interactions with their customers. Their work is intentional and it is driven from a set of beliefs about lending and about providing service. Ask your loan agent what their philosophy is. What is their mission statement or personal lending mantra that drives the way they conduct business?

If they don’t have a well-articulated way of doing business, or can’t relay their philosophical business and lending foundation then its time to move on. Here’s mine just for an example.

You ask: “What is your lending or personal business philosophy?”

I answer: “My philosophy is summed up in this way: ‘Nobody works harder to make getting a mortgage easier.’ I work hard for each and every one of my clients by providing service, information and mortgage products that are aligned with the unique needs of my clients. I develop a relationship that merely begins when your mortgage funds.”

Short, sweet and answers the question. Everyone that is intentional in their business has a philosophy – your loan agent should definitely have one.

5. Have you completed any licensing or continuing education?

Not all originators are required to be licensed, and not all originators are required to take continuing education. The licensing tests are mostly a joke, and obviously the system hasn’t stopped anyone from hurting people if they want to. With that said, there is something to say for someone taking the time to further their education in their respective fields. Whether you agree with licensing or not; you must agree that someone who is invested in improving themselves in their profession is a better candidate to win your business than someone who merely shows up and does nothing to improve their skill in their chosen profession.

Be sure to ask about licenses held and special designations or awards that have been earned.

6. What documents do you customarily provide to your your clients during the loan process?

We are looking for loan agents who are operate in a transparent, fully-disclosed and documented manner. We want to see that they provide the following:

  • Initial good faith estimate
  • Revised good faith estimate if there are program changes
  • Rate lock from the investor or secondary marketing department
  • Automated underwriting approval if used
  • Loan approval from the investor or underwriter’s desk
  • Estimated HUD 1-day prior to document signing

7. Which lenders do you use and which loan programs made up the majority of your originations last year?

Some of your originators will work for a broker or work for a bank. Some may work with dozens of lenders, others may have only their own lending department to work with. What we want to get out of this question is an understanding of the agent’s comfort level with various products. Loan agents are creatures of habit and tend to get loans to fit guidelines that they are familiar and comfortable with first; regardless of the amount of benefit available to you through other channels.

Here are some common channels you want to know about:

  • Are they a broker or a direct lender?
  • Do they provide government-sponsored FHA and VA loans?
  • Do they do primarily prime, Alt-A or subprime mortgages?
  • Do they do 2nd mortgages and home equity lines of credit? (HELOCs)

Get percentages and numbers for each. We don’t need exact numbers but rough estimates will help. If you talk to someone who is a broker who works primarily with subprime borrowers you can bet one of the quotes you get will be a short-term ARM loan through a subprime investor, regardless of your credit score. Conversely if you talk with someone who only does conforming prime loans for a direct lender they may say you don’t qualify for a loan when the problem is their limited product offerings.

The Bottom Line: You need to get a feel for the loan agent’s breadth and depth of product knowledge and expertise in order to asses how capable they will be in helping you secure a great mortgage. If you have a weak originator you are severely limited by their inability to identify the proper program for you.

There are definitely other important questions to ask. I encourage you to use these 7 as a jumping-off point to your relationship with your loan agent. They are not the end of the process – they are the beginning. These should be the second set of filters (after the 8 steps) that help you identify the agent that is going to best be able to assist you in finding the best loan for you and your family.