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15 Questions to Ask Your Mortgage Lender

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For most people, taking on a mortgage will be the biggest financial commitment of their life. A lot of decisions go into finding the right loan, and you may not feel well-equipped to navigate each of those steps. Finding the right lender can make the process a lot easier.

Not every lender will offer the best loan types and terms to fit your needs, so buyers should be prepared to shop around. Whether it’s your first home or your third, you can use these questions to help you compare lenders and choose the best fit for you.

  1. What types of mortgage loans do you offer?
  2. What repayment terms do you offer?
  3. Do you offer preapproval or prequalification?
  4. What is the minimum required down payment?
  5. Will I have to pay mortgage insurance? Are there any options where I can avoid it?
  6. Do you offer any down payment assistance?
  7. What credit and income qualifications do I need?
  8. What is my loan estimate?
  9. What will my interest rate and APR be?
  10. Do you offer mortgage points?
  11. Do you offer an interest rate lock, and what is the fee?
  12. What are my estimated closing costs?
  13. Is there a prepayment penalty?
  14. How long does the process take, from application to closing?
  15. Will you service my loan?

1. What types of mortgage loans do you offer?

It may come as a surprise to some buyers that there are multiple types of mortgages. Many buyers are familiar with the most common type ⁠— conventional mortgages ⁠— but there may be others that better suit your needs.

Some lenders can help you navigate and apply for the following loan types:

Conventional loans: There are several types of conventional loans, but these mortgages are not part of any government-backed program. Applicants typically need credit scores of 620 or higher to qualify and may need a down payment of at least 20% to avoid paying private mortgage insurance (PMI).

FHA loans: Backed by the Federal Housing Administration (FHA), borrowers can qualify for these loans with as little as 3.5% for a down payment and credit scores as low as 500, but you’ll have to pay two different types of mortgage insurance.

VA loans: Military members may qualify for a VA-backed mortgage if they’ve reached a set time commitment related to service. Down payments and mortgage insurance are not required, and there’s no set minimum credit score to qualify. However, borrowers will pay a funding fee of 0.5% to 3.6%.

USDA loans: The U.S. Department of Agriculture (USDA) offers these loans to help low- to moderate-income families purchase homes in rural areas. No down payment is required and loan terms can extend past 30 years. Credit scores of roughly 640 are required, though other qualifying factors may be considered in lieu of credit.

2. What repayment terms do you offer?

The word, “terms,” is typically used to refer to the length of time you have to repay a loan, but it can also be used to describe rates and fees. In both cases, the repayment terms will have a major impact on the cost of your loan repayment, so it’s crucial to know what the lender offers up front:

Fixed-rate mortgage: This type of mortgage has a set interest rate that’s determined when you take out your loan, and that rate doesn’t change for the duration of the loan. 

Adjustable-rate mortgage (ARM): The interest rate on an ARM loan can change over time. At set intervals ⁠— anywhere from one month to several years ⁠— the rate will begin to adjust on a recurring basis. ARMs often start at lower rates than fixed loans, but over time the interest rate may increase significantly.

15-year vs. 30-year mortgages: A 30-year repayment term is common for most buyers. However, a 15-year repayment term can be a good option for those who are able to afford a much higher monthly payment. The main benefit is that borrowers will save money on interest fees that would accrue over the longer repayment period.

3. Do you offer preapproval or prequalification?

Many financial professionals use the terms preapproval and prequalification interchangeably, including loan officers. But there is a significant difference between these two terms:

Loan prequalification is based on the unverified information you provide to a lender, including your own estimate of your income, credit score and other qualifications.

Loan preapproval includes the total loan amount you’re approved for and is needed to make offers on homes. Preapproval is based on a thorough process in which the lender verifies your financial documents, down payment, credit file and other details.

One way to keep the two straight is to imagine you’re applying for a job. If a potential employer informs you that you’re qualified for the job, you don’t actually have the job yet. Like employment, being qualified for a job doesn’t mean you’ll be hired, and being qualified for a mortgage doesn’t guarantee that you’ll be approved.

4. What is the minimum required down payment?

There can be major benefits to making a large down payment on the purchase of your home, but not all lenders require you to put 20% down. In fact, some allow as little as 3.5%, and government-backed home buyer programs may require even less.

The main benefits of making a larger down payment are that your monthly payments will be lower, you’ll pay less interest and you’ll gain equity faster. For conventional loans, a down payment of 20% or more also means that you won’t have to pay PMI. But for some buyers, finding a lender or a loan program with a lower minimum down payment may be the only way to make home ownership affordable.

5. Will I have to pay mortgage insurance? Are there any options where I can avoid it?

There are several different types of mortgage insurance that a lender may require you to buy. One way to avoid or reduce your insurance cost is to explore alternative loan types. You may also be able to reduce certain costs by improving your credit scores or by reducing the amount of debt you carry before applying for your mortgage. Be sure to ask the lender what you can do.

For conventional buyers, a 20% down payment may be the only way to avoid paying monthly PMI. If you’re unable to make a 20% down payment, you may be able to have the lender release you from the PMI requirement once you pay off 20% of the value of your home.

6. Do you offer any down payment assistance?

Depending on where you live and some of your other demographic information, you may be able to qualify for assistance in covering your down payment. This could include government grants, citywide homebuyer programs or assistance through your employer, and you may even be able to use multiple programs together.

Before you start applying, ask lenders which down payment assistance programs they work with. Some may not be approved to offer loans for a program you’re interested in, so you may need to locate a list of approved lenders before you shop around.

7. What credit and income qualifications do I need?

Credit scores and income both play a role in what you can qualify for. Not every lender has the same requirements, but in general, this is what lenders will look for to approve your mortgage application:

Credit score requirement: Most lenders look for scores of 620 or higher. Lower scores may qualify, but higher scores will result in more mortgage approvals and better terms.

Debt-to-income (DTI) ratio: Your DTI ratio is a calculation of your monthly debt payments (including mortgage) versus your gross monthly income. Lenders calculate your affordability based on this figure, and may not approve you for a loan if it pushes your debt obligations above 43% of your monthly gross income.

Employment history: In addition to income, lenders will review your employment situation and may require two years of consistent employment history.

8. What is my loan estimate?

A loan estimate (LE) is an important document for homebuyers to review, since it contains important details on your mortgage — such as the repayment term, interest rate and closing costs.

The lender is required to provide you with this document within three business days after you complete your loan application. However, borrowers should not be hesitant to review the document with their loan officer and make sure they have a thorough understanding of what terms they have been approved for.

9. What will my interest rate and APR be?

Interest rates and APR both refer to amounts you’ll be charged for owing a debt to your lender. These figures are based on some of the same information, though APR is a much more inclusive figure, and will more accurately represent the cost to repay your loan. Here’s the difference:

Interest rate: The rate a lender charges you for owing money, typically charged as a percentage of your remaining balance each month.

Annual Percentage Rate (APR): The annual cost of owing money to your lender, including your interest rate, plus all of the lender’s other fees, including closing costs and origination fees.

10. Do you offer mortgage points?

Some lenders allow you to reduce your interest rate by buying “points.” For every mortgage point you buy, you’ll reduce your interest rate by 1%.

Each lender has their own way of calculating the cost of a point, so it’s important to get rate quotes, compare lenders’ pricing structures and calculate whether or not buying points will actually save you money on your overall loan repayment.

11. Do you offer an interest rate lock, and what is the fee?

If you get approved for a great, low rate from one of your potential lenders, you may want to lock that rate in. That’s because mortgage rates and other frequently fluctuating factors could cause your approval offer to change before you close on your loan.

If the lender allows a rate lock, you may have to pay a deposit or fee, but you could have the option to lock your rate in for a month, 60 days or even longer.

12. What are my estimated closing costs?

In addition to a down payment, closing costs are the other major expense involved in buying a home. Closing costs typically range between 2% to 6% of the loan amount, and they cover a number of fees involved with taking out your loan, including:

Origination fees

Application and underwriting fees

Appraisals and inspections

Title fees and insurance

Recording fees

In some cases you may be able to negotiate with your lender to reduce your closing costs, or negotiate to have the seller cover the expense.

13. Is there a prepayment penalty?

Paying off your mortgage early is one of the best ways you can reduce the amount of debt you owe. That’s because interest is charged based on the remaining balance that you have each month, so making early payments reduces your total interest charges.

Unfortunately, some lenders may prevent you from realizing that savings by charging a prepayment penalty. You can ask the lender if they charge this fee, or check for the information on the first page of your closing disclosure. If you do make early payments, make sure to stipulate that the money is meant to go toward your principal, not toward interest.

14. How long does the process take, from application to closing?

Time frames for processing a loan can vary from one lender to the next, and the timeline for government-backed loans is on the longer side. As such, it’s important to ask the lender about this up front.

For a conventional loan, it could take around 48 days to complete the process from application to closing. During that time, you’ll want to make sure you understand how to receive updates from the lender and submit any documents they may request. That way, you don’t unintentionally slow down the process.

15. Will you service my loan?

The company that lends you the mortgage may not be the same company you deal with down the line. That’s because some lenders sell mortgages to other companies that “service” the loans, handling things like billing and account management.

Ask your loan officer if your mortgage will be transferred to a loan servicer after closing — that way, you can be prepared to deal with a different agency. You’ll also receive notices from both the lender and the servicer if your loan is transferred at a later date.

 

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