13 questions to ask your mortgage lender

Everything you need to know before taking out a home loan.

Elissa

Elissa Suh

Published March 11, 2020

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KEY TAKEAWAYS

Buying a home is an important and expensive decision. For first-time homebuyers and refinancers, approaching a mortgage lender can be daunting. You want to make sure you’re getting the best deal, so it’s important to go into this situation with as much knowledge as you can. Catch up on all things mortgage-related here or keep reading for 12 mortgage questions to ask.

In this article:

One mortgage question for homebuyers

One crucial question to ask when buying a house: how much house can I afford? While you can ask your lender, it’s in your best interest to do some thoughtful research ahead of time. Do a financial once-over, paying attention to your income and debt to see how much you can afford to pay each month. Make sure you factor in costs like property taxes and homeowners insurance as well as the size of your down payment.

You can use our free mortgage calculator to get a general idea of what a monthly payment would be like with different loan amounts and interest rates.

1. What do I need for mortgage preapproval? What about actual approval?

Preapproval is a loan estimate of how much the mortgage lender thinks you can afford to borrow. The lender only needs minimal financial information, like your credit score. But when it comes time for actual mortgage approval, you’ll need to provide actual proof of your financials. Ask what documents are required as part of the loan application so you can have everything prepared. Typically you’ll need to show bank statements, tax returns, pay stubs, and proof of employment and any additional income.

Learn all about how to get preapproved for a mortgage.

2. What credit score do I need to qualify?

Your credit score is one of the key metrics that the mortgage underwriter will use to determine whether or not you qualify for a loan. A higher credit score can help you get better rates, but borrowers who have no credit score — maybe because they paid off all their debts — can still qualify as well.

Learn more about the highest credit score and how to get it.

Those with less than stellar credit scores may not get as great of a loan offer or qualify at all if they have a derogatory mark in their credit history due to foreclosure. But don’t worry there’s still hope, which brings us to the next mortgage question.

3. What type of loans do you offer?

There are two main types of mortgage loans: loans that are insured by the Department of Housing and Urban Development (HUD) and loans that are not (conventional loans).

Government-insured loans, like FHA loans, VA loans, and USDA loans, are all designed with low- and moderate-income borrowers in mind. These loans can help people purchase a home despite their credit score and credit history. If this type of loan is right for you, you’ll need to find a HUD-approved lender.

4. What are the mortgage rates and how do I lock them?

One of the most important factors affecting the cost of your mortgage is the interest rate. In addition to personal factors, like your credit score, mortgage rates are largely tied to economic conditions — when rates drop, that’s when people tend to start to think about refinancing.

You can read our weekly analysis of mortgage rates to keep tabs on how rates are trending overall.

Keep in mind that the rate offered to you by the lender varies even more based on a few things, like the type of rate mortgage you get — fixed-rate, adjustable-rate (ARM), or hybrid — and the length of the mortgage — five years, 30 years or anything in between.

An adjustable-rate mortgage or hybrid mortgage may have a lower interest rate than a comparable fixed-rate mortgage for a number of years, but the interest rate could go up and eventually exceed that of the fixed-rate mortgage.

The term length could make a difference, too. The 30-year fixed-rate mortgage typically has a higher interest rate than the 15-year fixed-rate mortgage, on average.

Ask your lender for the annual percentage rate, or APR, which is what’s actually used to calculate your payment. (It includes other costs, like points and fees.) Finally, ask how long the rates are good for. Mortgage rates change daily, so if you’re near closing and suspect rates will rise, you may want to lock your rate before it changes.

5. Is now a good time to refinance?

Refinancing a mortgage entails repaying your loan balance in full, so ask your lender after how many years you’d be allowed to refinance.

Mortgage rates are at one of their lowest points ever, so refinancing can save you a lot of money if you’re stuck in a mortgage with a high interest rate. But be sure to compare closing costs to the amount you’re saving on interest to figure out how long it’ll take you to break even.

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6. Do you offer mortgage points?

If the lender offers you a higher mortgage rate than you’d like, you can actually “buy down the rate” through mortgage points, also known as discount points. Buying a point might not be right for everyone — you have to pay for the points upfront and the money might be better used elsewhere. Ask your lender how much a point costs and how much (what percentage) it can lower your mortgage rate.

Learn all about mortgage points.

7. How big should my down payment be?

You’ve probably heard that buying a house requires 20% down towards the purchase price, but that’s not true — most mortgage lenders accept less. However, making a larger down payment means you’ll ultimately take out a smaller loan and pay less interest on your mortgage. It also affects whether or not you pay private mortgage insurance, which we’ll talk about next.

Learn all about making a down payment on a home.

8. How much private mortgage insurance will I pay?

A mortgage comes with other costs that you may not know about, like private mortgage insurance (PMI). PMI is insurance for the lender; it protects them in case you stop making your mortgage payments. If you put down 20% then you won’t have to pay it at all. Otherwise, you’ll continue paying it until you’ve gained enough equity in your home.

Most people pay PMI on a monthly basis, simply added to their mortgage payment. However, your lender may offer different payment methods, which can ultimately affect the total cost of your PMI over the course of the loan. For example, you might choose all of the mortgage insurance upfront as a single payment, which may be more or less than the total cost had you made monthly payments. Ask the lender how much PMI costs and the different ways it might be paid.

Learn all about private mortgage insurance.

9. What is the total monthly payment?

Your mortgage payment includes more than just principal and interest. It will likely include premiums for private mortgage insurance that we previously mentioned as well as property taxes. Ask the lender what you can actually expect to pay on a monthly basis.

10. Do I need an escrow account?

An escrow account is a convenient way to pay for certain added costs of homeownership, like property taxes and homeowners insurance, which protects your home from covered hazards. You place money into an escrow account, which pays the bills on your behalf. Many lenders require borrowers to use escrow, but if you want to opt out you’ll need to sign a waiver.

Learn all about escrow accounts.

11. What are the estimated closing costs?

Closing costs can vary greatly, but your lender should be able to give you an estimate for what you can pay in your area for a comparable home or loan amount. Examples of closing costs include an appraisal fee, origination fee, and transfer taxes. You might be able to negotiate with your lender on some fees and costs, but not others.

Learn all about closing costs.

12. How long will it take to close?

A real estate closing can take a month or more. It depends on how quickly the mortgage underwriter can approve your loan. Your lender should be able to give you an estimated timeline based on your situation.

13. Can I pay off my mortgage early?

You can actually incur a fee for paying down a chunk of your loan or paying off the entire thing early because of something called a prepayment penalty. There are federal restrictions on how much the lender can charge for these fees, but it’s a good idea to ask your lender exactly what they are.

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