Asking the right question can fix a problem before it even happens.
If you are nervous about trying to qualify for a home loan, don’t be afraid to ask questions.
Continue reading for questions that you should be ready to ask. It’s important to find a good mortgage lender who has the answers, so you have confidence moving forward!
What Types of Loans Do You Offer?
Mortgage lenders can choose which types of loans they work with and underwrite. There are several home loan options, so it’s always a good idea to ask what that particular lender offers and which you might qualify for.
The lender can explain the difference and what they offer between:
- Conventional loans
- FHA loans
- VA loans
- USDA loans
- Fixed-rate vs Adjustable-rate mortgages.
Ask questions about the types of loans you qualify for to understand the pros and cons of each. For example: if you are able to consider a VA loan, you would get the benefits associated with them, but they have a much stricter qualification process.
What is Your Process for Prequalification or Preapproval?
First, know that prequalification and preapproval are different.
Prequalification is a general idea of what you would qualify for based on basic information you provide the lender. This is not a locked-in qualification until the lender verifies that information; it is basically a rough estimate.
When the lender gets all the information they need to verify your income, debt, and other financial information, they will give you an official pre-approval letter for the amount that you qualify to borrow.
The preapproval letter will help you and your real estate agent during your home search and when you are ready to make an offer.
What Will My Interest Rate Be?
Your interest rate will affect your monthly payment and how much the loan will cost you over the life of the loan. Different lenders will offer different interest rates with different incentives or origination fees. Don’t expect all lenders to have the lowest or same interest rates.
Will You Lock My Interest Rate?
If you haven’t begun or are still in the process of searching for a home, this is an important question to ask.
Often mortgage lenders will lock your interest rate for a certain time period; 30-45 days is typical. There may be fees associated with the interest lock if your search or closing takes longer than that time frame.
You should also ask if they will lock it in with the ability to float down the interest rate if rates go lower while you are locked in.
Will My Credit Score Affect My Interest Rate?
The interest rate you qualify for is based on your credit score. You should always ask your mortgage lender about your credit score and how it is affecting your interest rate.
If your score is close to the next tier for better interest rates, ask your lender how you can improve it. They can then request a new score and possibly get you a better rate.
What Are the Fees and Closing Costs?
Ask the mortgage lender to review the breakdown of fees and closing costs. You may find items that are negotiable, especially if you are shopping around and comparing lenders.
Ask about origination fees for the loan, what costs you may need to pay for upfront versus being included in the loan, and about anything else that you don’t understand.
What Will I Need for a Down Payment?
The type of loan you choose will affect this answer. Of course, the more you are able to put down upfront, the lower your mortgage payments will be.
Also, take into consideration the mortgage lender’s requirements for private mortgage insurance (PMI). If there is less than a certain percentage in equity from your mortgage, you will have an additional PMI fee on your loan.
Do You Offer Help With Down Payment Assistance Programs?
There are programs available, such as grants for first-time homebuyers, that can help with down payments or interest rates. Ask your lender what they help you apply for and what might be available that you could apply for on your own.
Will I Need an Escrow Account?
Most of the time, lenders are required by law to set up an escrow account associated with your loan. This is a third-party account where a portion of your payment will be held in order to pay your taxes and home insurance.
What is My Monthly Payment?
This is the bottom line question that is most important for your budget. The monthly payment should have your principal, interest, escrow payment for insurance and taxes, and PMI.
Ask how different down payments or loan lengths can affect your monthly payment. This may be a good time to ask about the difference in monthly payments between 15-, 20-, and 30-year mortgages.
Are There Prepayment Penalties?
If you are hoping to pay down your loan more quickly with extra payments, this is a great question to ask to cover all your bases. The mortgage lender can show you in the loan information whether or not there are prepayment penalties and how that is outlined.
What Does Closing Look Like?
Knowing what to expect from your lender will help make that process smooth and painless for you. The main information you want to understand with closing is how long it will take once you are under contract with a home for the lender to underwrite and close the loan. In particular, make sure the loan will close within the time frame that your interest rate is locked in.
Will You Sell My Loan After Closing?
Some mortgage lenders do sell your loan to a third party after closing. Be sure to ask if this is something your lender plans to do, who they sell it to, and if you have any say in the matter.
A Good Mortgage Lender Loves Questions
There’s a lot of information to process as you buy a home and work with a mortgage lender. Choose a lender that is willing to answer your questions and offers helpful information, even before you ask. A mortgage lender’s job is to help you get what you need, so don’t be afraid to ask away!
We would love to answer any of your mortgage questions! Contact us today!