Become an educated borrower with key questions

Most consumers have only marginal knowledge about today's mortgage products, mortgage procedures and underwriting guidelines. True, some borrowers just want to sign loan documents and be done with it, but no loan officer should assume all borrowers fit that mold.

With that said, all lenders should talk about the following key issues in their first or second meeting with their clients. These topics are independent of whether or not the loan involves a purchase, a refinance or just a small second mortgage to remodel the kitchen.

Your credit history: Loan officers should pull your credit report, give you a copy and review your credit report with you, discussing how it impacts your ability to obtain the loan you want. Today, good credit is often defined as having high credit scores. Many loans are submitted and approved by automated underwriting (AU). These AU programs are highly credit-score sensitive. Borrowers with low scores should know what caused them and what can be done to improve these scores over time.

Different loan program options: There are just too many different loan products available. No loan officer should assume that a standard 30-year fixed-rate mortgage is the only mortgage anyone will ever need. There are pros and cons to 20-year, 15-year and adjustable rate mortgages (ARMs). For some borrowers, intermediate ARMs, balloon mortgages or home equity lines of credit make the most sense. If the loan amount is over 80 percent loan-to-value (LTV) and private mortgage insurance (PMI) is initially required, it is probably advantageous to keep the first mortgage at 80 percent LTV and combine it with a simultaneous low-rate second mortgage to avoid paying PMI. The possibilities are endless. But the borrower should make the choices, not the lender.

Pricing options: Almost all mortgages come with a choice of interest rate variations versus price. The borrower should be free to choose to pay more to get a lower interest rate or pay less to take a higher rate. The payback period is the key to this decision. All loan officers should present multiple options and discuss the payback time for each available interest rate as well as the pros and cons of each decision. Never assume there is only one interest rate or one price for any type of loan.

To lock or not to lock: Lock decisions are to be taken seriously. The wisdom of locking now vs. floating until just before one is ready to draw loan documents has to be addressed. Typically there are a number of lock options (in days) and the costs and merits of each should be brought to the borrower's attention as soon as possible.

Closing cost estimates: Although federal law says lenders have to supply borrowers with an early estimate of closing costs, there is no law that says lenders must give clear explanations of the various fees. Typically, the Good Faith Estimate of closing costs is misunderstood as to content as well as to accuracy. Both of these issues need to be discussed up-front.

Schedules: All parties need to know how long the loan process will take as well as what the time lines are once a loan application is accepted by the loan officer. All too often the borrower is told, "I'll let you know when we have loan documents to sign." How many borrowers understand what a three-day right of recission is all about? How many can work back from their lock date and determine when they need to sign documents?

Documentation requirements: Not all loans or loan programs need the same paperwork. Why should the loan officer ask the borrower to supply copies of everything under the sun when the underwriter may only need one pay stub? The same goes for documenting assets, employment history and credit issues.

Appraisal requirements: Different loan programs require different types of appraisals. Why pay for the most expensive if it isn't needed? Along the same lines, setting up an appraisal appointment cannot be delayed as appraisals often take up to two weeks to complete.

Mortgage decisions can be complex and an educated borrower will generally make the best decisions. That's why borrowers must ask plenty of questions and good loan officers should be ready with informative answers.

What are people saying about mortgages today:

Rates on 30-year mortgages edged down last week to a seven-month low. Mortgage-giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages fell to 6.3 percent, down slightly from 6.31 percent two weeks ago. It put rates at the lowest level since they were at 6.24 percent the first week of March.

Bank of Hawaii, Central Pacific Bank, Territorial Savings Bank and Wells Fargo Home Mortgages all cut their 30-year mortgage rates to 5.75 percent this week.

Most people think of a mortgage as a means to an end. After all, you buy a house, not a home loan. But a mortgage is much more than the path to homeownership. It is a financial instrument that must be managed, just like any other financial investment.