Shopping for a Mortgage in New Jersey? 30 Questions to Ask Before Choosing a Lender

Two mortgage lenders can quote dramatically different interest rates to the same homebuyer. One might quote 7.5%, while a credit union or another lender quotes 6.5%.

Does that automatically mean the 6.5% mortgage is the better deal?

Not necessarily.

The lower rate might require discount points, a larger down payment, a shorter rate-lock period, excellent credit, credit-union membership or substantial upfront costs. The two lenders may also be quoting different loan programs or making different assumptions about the buyer and property.

The Short Answer

New Jersey homebuyers should compare written Loan Estimates, not verbal interest-rate quotes.

Ask each lender to prepare an estimate using the same:

• Purchase price
• Loan amount
• Down payment
• Credit-score assumptions
• Property type
• Occupancy
• Loan program
• Loan term
• Rate-lock period
• Discount-point or lender-credit selection

Then compare the interest rate, APR, monthly mortgage insurance, lender-controlled fees, total monthly payment, estimated cash to close and five-year cost of borrowing.

The lender with the lowest advertised interest rate may not offer the lowest overall cost.

Why Two Lenders May Quote Different Mortgage Rates

Mortgage rates are not one-size-fits-all. A quote may be affected by:

• Credit score
• Credit history
• Debt-to-income ratio
• Down-payment percentage
• Loan amount
• Conventional, FHA, VA or USDA financing
• First-home or repeat-buyer status
• Primary residence, second home or investment use
• Single-family, condominium, multifamily or manufactured-home classification
• Length of the mortgage
• Fixed or adjustable rate
• Rate-lock period
• Discount points
• Lender credits
• Assistance programs
• Market conditions on the day and time of the quote

A buyer cannot fairly compare a 30-year fixed conventional loan with zero points against a rate that requires one discount point, a 15-year mortgage or an adjustable introductory rate.

Interest Rate Versus APR: What Is the Difference?

The interest rate helps determine the principal-and-interest portion of the monthly mortgage payment.

The annual percentage rate, or APR, reflects the interest rate plus certain borrowing costs, expressed as an annual percentage. It can help buyers identify when an attractive interest rate comes with substantial upfront charges.

For example, Lender A could offer a lower interest rate but charge several thousand dollars in points and origination costs. Lender B could offer a slightly higher rate with much lower lender fees.

APR is useful, but buyers should not use it by itself. Compare:

• Interest rate
• APR
• Monthly payment
• Mortgage insurance
• Total loan costs
• Cash required at closing
• Cost over the time you expect to keep the mortgage

What Is a Mortgage Point?

One mortgage point generally equals 1% of the loan amount.

A discount point is an upfront payment made in exchange for a lower interest rate. The exact rate reduction received for one point varies by lender, program and market conditions.

Buyers should ask:

How much will these points cost in dollars, how much will they reduce my monthly payment, and how long will it take me to recover the upfront cost?

Suppose paying $3,000 in points reduces the monthly payment by $75. The approximate break-even period would be 40 months:

$3,000 ÷ $75 = 40 months

Paying the points may make sense if the buyer expects to keep the mortgage well beyond that point. It may offer little benefit if the buyer expects to sell or refinance sooner.

The Consumer Financial Protection Bureau's explanation of points and lender credits provides additional guidance.

What Is a Lender Credit?

A lender credit generally works in the opposite direction from a discount point.

The lender contributes money toward the buyer's closing costs, but the buyer normally accepts a higher interest rate in exchange. This can reduce the cash required at closing while increasing the monthly payment and long-term borrowing cost.

Ask the lender to show three written options:

1. The mortgage with zero points and zero rate-related lender credits
2. A lower rate obtained by paying points
3. Reduced upfront costs obtained through lender credits

This makes the tradeoff much easier to understand.

What Are Origination Charges?

Origination charges are upfront costs imposed by the lender for originating and processing the mortgage. Depending on the lender, they may include:

• Origination fee
• Application fee
• Underwriting fee
• Processing fee
• Administration fee
• Verification fee
• Rate-lock fee
• Tax-service fee
• Flood-certification fee

The names can vary. Buyers should compare the total amount under Origination Charges in Section A on page two of the Loan Estimate, not merely one individual fee.

What Is a Loan Estimate?

A Loan Estimate is a standardized three-page disclosure containing important information about a proposed mortgage, including:

• Loan amount
• Interest rate
• Principal-and-interest payment
• Projected total payment
• Mortgage insurance
• Estimated taxes and insurance
• Whether the rate is locked
• Origination charges
• Points
• Lender credits
• Estimated cash to close
• APR
• Five-year cost comparison
• The lender's intention regarding loan servicing

Request Loan Estimates from multiple lenders and compare them side by side. The CFPB provides an interactive Loan Estimate Explainer for consumers.

Compare the Same Mortgage Scenario

Give every lender the same information and say:

Please provide a written Loan Estimate based on the same purchase price, loan amount, down payment, credit profile, property type, occupancy, loan term and rate-lock period. Please show the interest rate with zero discount points unless the points are clearly identified.

Try to obtain the estimates close together because mortgage-market pricing can change daily, and sometimes during the same day.

30 Questions to Ask a Mortgage Lender

Rates, APR and points

1. 1 What is the interest rate?
2. 2 What is the APR?
3. 3 Is this a fixed or adjustable interest rate?
4. 4 Does this rate require discount points?
5. 5 What do the points cost in actual dollars?
6. 6 What would my interest rate be with zero points?
7. 7 Are there lender credits, and am I accepting a higher rate to receive them?
8. 8 How long would I need to keep this mortgage to recover the cost of the points?

Fees and money needed at closing

1. 9 What are your total origination charges?
2. 10 Are there application, underwriting, processing, administration or verification fees?
3. 11 What is my estimated cash to close?
4. 12 Which costs are controlled by the lender?
5. 13 Which services am I permitted to shop for?
6. 14 Could any quoted fees change before closing?
7. 15 Are taxes, homeowners insurance, flood insurance and prepaid escrow amounts based on realistic estimates?

Monthly and long-term costs

1. 16 What is the complete estimated monthly payment?
2. 17 How much mortgage insurance will I pay initially and monthly?
3. 18 When and how can the mortgage insurance be removed?
4. 19 What is the estimated five-year cost of borrowing?
5. 20 Are there prepayment penalties, balloon payments or other unusual loan features?
6. 21 Can the mortgage be recast after a substantial principal payment?
7. 22 Is this mortgage assumable by a qualified future buyer?

Rate locks and closing

1. 23 Is this interest rate currently locked or merely quoted?
2. 24 How long does the rate lock last?
3. 25 Is there a cost to lock or extend the lock?
4. 26 What happens if the closing is delayed?
5. 27 Do you offer a float-down option if rates improve?
6. 28 Can your company meet the mortgage-contingency and closing deadlines in my contract?

Lender service and loan servicing

1. 29 Who will handle my application from preapproval through closing, and how quickly can that person be reached?
2. 30 Do you expect to service this mortgage after closing, or will the servicing likely be transferred?

Will the Mortgage Company Keep or Sell My Loan?

The lender that originates a mortgage may not be the company that collects the payments for the life of the loan.

A lender may:

• Keep and service the mortgage
• Sell the mortgage but continue servicing it
• Sell both the mortgage and servicing rights
• Transfer servicing sometime after closing

The mortgage's contractual interest rate and repayment terms generally do not change merely because servicing is transferred. However, the homeowner may have to send payments to a different company and contact a new servicer about payments, escrow, insurance or account problems.

Page three of the Loan Estimate indicates whether the lender currently intends to service the mortgage or transfer servicing. That is helpful information, but it may not guarantee what will happen years later.

Good follow-up questions include:

• Who do I contact if servicing is transferred?
• How will I be notified?
• How are automatic payments transferred?
• How does your servicing department handle escrow questions?
• Do you offer online account access and responsive customer support?

Service matters, but it should be considered alongside the mortgage's total cost and the lender's ability to complete the transaction on time.

Comparing NJHMFA Homebuyer Programs

The New Jersey Housing and Mortgage Finance Agency offers several programs that may help qualified homebuyers. These programs have different mortgages, eligibility requirements and assistance options.

NJHMFA First-Time Homebuyer Mortgage Program

This program provides qualified first-time buyers with a competitive 30-year fixed-rate government-insured mortgage through an NJHMFA participating lender. Depending on eligibility, the financing may be FHA, VA or USDA.

NJHMFA generally defines a first-time homebuyer as someone who has not owned a home during the previous three years. Exceptions or different rules may apply to certain program situations.

NJHMFA HFA Advantage Mortgage Program

HFA Advantage is a 30-year fixed-rate conventional mortgage for eligible New Jersey homebuyers. It may offer a low down-payment requirement and affordable conventional mortgage insurance.

This is the principal conventional NJHMFA option buyers should ask about when comparing a state-assisted conventional mortgage with FHA financing.

NJHMFA Homeward Bound

Homeward Bound provides an eligible buyer with a 30-year fixed-rate government-insured mortgage. It may be available to both first-time and repeat homebuyers, subject to applicable program requirements.

The mortgage program's eligibility and the eligibility for down-payment assistance must be verified separately. A repeat buyer should not assume that qualifying for Homeward Bound automatically qualifies that person for every form of assistance.

NJHMFA Down Payment Assistance

NJHMFA's statewide Down Payment Assistance Program can provide qualified first-time buyers with up to $15,000, depending on the county where the property is located.

Eligible first-generation buyers may qualify for an additional $7,000, producing combined assistance of $17,000 to $22,000.

Review current programs and consumer fact sheets on the official NJHMFA homebuyer-program website.

Is NJHMFA Assistance Really a Grant?

Buyers frequently call the assistance a “grant,” but its legal structure is important.

NJHMFA down-payment assistance is generally provided as an interest-free, five-year forgivable second mortgage with no monthly payment. The assistance may be forgiven if the borrower continuously occupies the property as a primary residence and complies with the program requirements.

If the buyer sells, refinances or otherwise transfers the property before the forgiveness period ends, repayment may be required.

Before accepting assistance, ask:

• How much assistance is available in the property's county?
• Is this a second mortgage?
• Is it completely interest-free?
• Are there monthly payments?
• When is it forgiven?
• What happens if I refinance?
• What happens if I sell or move?
• Does everyone in the household count toward the income limit?
• Is there a maximum purchase price?
• Does the property qualify?
• Would the first-mortgage rate be different without assistance?
• What would a regular FHA or conventional loan cost without NJHMFA assistance?

A program that reduces the money needed at closing can be extremely helpful, but buyers should understand both the first mortgage and the forgivable second mortgage.

Do Not Compare NJHMFA Programs by Rate Alone

NJHMFA program rates can change. The rate may also differ depending on whether the mortgage is government-insured or conventional and whether assistance is included.

Instead of relying on a rate seen online or heard in conversation, ask an NJHMFA participating lender for a dated written comparison showing:

A lower-rate program is not always the best fit, and a higher-rate assistance program is not automatically a bad choice. The right decision depends on the buyer's available savings, monthly budget, eligibility, expected length of ownership and future refinancing plans.

Additional Issues Buyers Often Miss

Mortgage insurance

Conventional private mortgage insurance and FHA mortgage insurance operate differently. Ask how much it costs, how long it lasts and whether it can eventually be removed without refinancing.

Property type

Condos, manufactured homes, multifamily properties, investment properties and some rural homes can have different financing rules, rates or approval requirements.

Appraisal requirements

Ask whether the loan program has property-condition requirements and how repairs identified by an appraiser could affect closing.

Seller concessions

Ask how much the seller may legally contribute toward closing costs under the proposed loan program. The permitted amount may depend on the loan type, down payment and occupancy.

Gift funds

If family members are helping, ask whether gift funds are permitted and what documentation will be required.

Flood and homeowners insurance

A low preliminary payment may be misleading if the lender has not used a realistic insurance estimate. This is especially important for homes near the Jersey Shore or in a flood-hazard area.

Preapproval quality

Ask whether the preapproval is based only on information entered by the buyer or whether income, assets and credit have been reviewed. A stronger preapproval can reveal possible problems earlier.

Communication and reliability

A slightly lower rate may offer little benefit if the lender cannot provide timely preapproval updates, communicate with the parties or meet the contractual closing deadline.

Red Flags When Comparing Mortgage Lenders

Proceed carefully if a lender:

• Refuses to explain the APR
• Will not identify the points required for an advertised rate
• Focuses only on the monthly principal-and-interest payment
• Uses unrealistically low tax or insurance estimates
• Cannot explain the cash-to-close calculation
• Discourages the buyer from comparing written estimates
• Changes the loan program without a clear explanation
• Promises that the rate is locked but provides no written confirmation
• Avoids questions about mortgage insurance
• Pressures the buyer to act immediately without reviewing the documents
• Cannot explain why the Closing Disclosure differs significantly from the Loan Estimate

Differences do not automatically mean wrongdoing. Property, credit, income, assets, appraisal findings or other loan details can legitimately change. Buyers should still request a specific written explanation.

The CFPB offers additional guidance on comparing and negotiating mortgage offers.

The Bottom Line

Do not choose a mortgage lender based solely on an advertised or verbally quoted interest rate.

Obtain written Loan Estimates based on the same scenario. Compare the interest rate, APR, points, lender credits, origination charges, mortgage insurance, monthly payment, cash to close and five-year borrowing cost.

For an NJHMFA mortgage, compare the value of the assistance with the first-mortgage rate, program costs and five-year forgiveness requirements.

The best mortgage is not necessarily the one with the lowest headline rate. It is the financing that provides a competitive overall cost, fits the buyer's available cash and monthly budget, and can be completed reliably within the home-purchase contract.

Need Help Starting Your South Jersey Home Search?

A mortgage professional should explain the financing, qualification requirements, rates and loan costs. Your real estate agent can help you identify the property expenses that lenders need for accurate estimates, coordinate financing deadlines and ask practical questions about how the proposed loan affects the home search and offer.

Derek Doernbach helps buyers throughout South Jersey and the Jersey Shore understand the home-buying process, evaluate properties and coordinate with their chosen mortgage professionals.

Visit DerekDoernbach.com to explore South Jersey real estate resources and homes for sale.

Frequently Asked Questions