When it comes to house-hunting, finding your dream home is only part of the equation. Before you even start looking, you’ll also need to find a mortgage lender who will determine how much house you can afford, make sure your credit is in good standing, and see what kind of loan programs will work best for you. And while you can expect to answer plenty of questions from your mortgage lender about qualifying for a loan, as a buyer, there are also several important questions you should be asking your lender.
With help from professional real estate agents, we’ve put together a comprehensive list that addresses some of the most pertinent questions a buyer should ask their lender. From loan types, to down payment amounts, and how long it might take to close, here’s a breakdown of all the questions you should be asking your lender, and why these are good things to know before you buy a home.
1. How much mortgage do I qualify for?
One of the first things you’ll want to know is just how much house you can afford, which is based on your income, credit score, debt-to-income ratio (DTI), and savings amount (including your down payment).
According to California real estate agent Mark Moskowitz, who has nearly 30 years of experience in the industry, buyers should be talking to their lenders about how to get the most out of every dollar — which leads us to question #2…
2. What is the best way to utilize my down payment money and maximize my buying power?
Moskowitz says that sometimes a large down payment isn’t necessarily the way to go when it comes to financing your home loan.
“If you have student loan debt, or other debt, you could potentially make a lower down payment and use some of that money to pay it off [before getting a mortgage], which could in turn free up more of your monthly income and make for a better debt-to-income ratio,” he explains.
“I had some clients a few years ago that had trouble qualifying because they had a lot of debt.
Their family was going to gift them with $20,000 toward the down payment, but just applying that to the down payment didn’t help much.
“Instead, we applied a portion of that money to pay off debt, which freed up nearly $800 a month of their income. It ended up giving them an additional $47,000 in buying power.”
These are things you just might not know as a buyer — but your agent and loan officer can give you guidance!
3. What type of home loans do you offer?
There are several types of home loans out there, and you’ll want to ask any potential lender which ones they offer, as not all lenders support all loan types.
Conventional home loans are private loans that aren’t secured by any kind of government program, and these are available through banks, credit unions, and mortgage companies.
The minimum down payment can be as low as 3%, but that is contingent on the buyer’s qualifications.
The Federal Housing Administration (FHA) has a loan program that requires a minimum down payment of 3.5%, and it has lower credit score requirements than some other programs.
This can be a great option for first-time homebuyers, or for buyers who don’t have a large down payment saved. This loan does require that buyers purchase mortgage insurance, which will increase your monthly payment.
If you want to purchase a rural property (or even one in the suburbs — these loans cover more homes than you’d think!), then you may qualify for a USDA loan, which is a zero-down-payment program geared toward applicants whose income is at or below certain area limits.
Underwriting requirements can be fairly stringent with these types of loans. They’re particularly careful with property eligibility and income limitations, but they may also be more accepting of buyers with limited to no credit history.
This is another zero-down-payment program, and it’s backed by the Department of Veteran’s Affairs. The VA backs a portion of the loan against default, which makes banks more willing to finance.
VA loans are a benefit for enlisted military members, veterans, and their qualifying spouses.
4. What about interest rates?
There are two basic interest rate options for most buyers: fixed-rate or adjustable-rate loans.
Fixed-rate loans are just that — the interest rate you lock into at the time you make your home purchase is fixed, so it’s the rate you’ll have for the duration of your loan.
Adjustable-rate mortgages, or ARM loans, can be a bit trickier. Sometimes you can get a lower starting interest rate than you would with a fixed-rate loan, but after that introductory period (usually 3, 5, or 7 years), the loan’s rate adjusts at regular intervals (usually each 6 months or once each year), which can make your payments more expensive in the long term. ARM loans are tied to an interest rate index, which fluctuates.
If you decide to go with an ARM, you’ll want to know whether or not the interest caps at a certain point, and how long you can expect your mortgage payment to remain at the introductory rate. These loans are usually better for buyers who know they aren’t going to stay in their house for more than a limited number of years, anyway.
5. What rates am I qualified for?
Interest rates can be affected by your credit score, down payment amount, and even the state you live in. If you have a high credit score, (say, in the high 700s), you might qualify for a lower interest rate than if your credit has some blemishes.
This is also another good moment to talk to your lender about the down payment. Putting 20% down gives you more “skin in the game” as a buyer, which means you could have a lower interest rate, and in turn, a lower monthly mortgage payment.
6. What type of mortgage would be best for me?
The type of mortgage loan program you go with will depend on your individual needs.
If your credit isn’t excellent and you need to make a lower down payment, talk to your lender about an FHA loan. If your credit is stronger, maybe a conventional loan is the way to go. Or if you’re buying a home that’s outside of a city center, and you meet the income requirements, then you might want to consider a USDA loan.
Or maybe you only plan to owner-occupy the home for a few years and then plan to sell or rent it out — in which case, you’ll want to make sure that there aren’t any specific occupancy requirements tied to your loan.
Your lender should be able to provide a few different loan options for you, based on what will work best for your situation.
7. How much should I put down on the home?
Again, this is going to depend on your individual circumstances. A larger down payment usually means a lower interest rate, and you may even be able to avoid paying mortgage insurance. But there are times when a lower down payment might be a better option.
If you’re buying a fixer-upper and you know you’ll need money to do improvements and repairs, then making a lower down payment means you can do those repairs out-of-pocket and build equity.
If putting a large down payment means you’ll be strapped financially in the near future, you might be better off to go with a lower amount.
If you have a lot of debt that is affecting your buying power, as noted above, consider using some of that down payment money to pay off bills.
“You’re qualified based on the monthly payment,” says Moskowitz. “If you can reduce your current monthly payments, you will qualify for more house.”
8. Are there any down payment assistance programs available to me?
Down payment assistance programs are available in most states, but not all lenders support them. These programs can range from grants to low-interest, forgivable loans, with some offering upward of $5,000 toward your down payment. Eligibility varies by program and state, and while many are geared toward first-time or low-income buyers, there are assistance programs for repeat buyers, as well.
A lender that is knowledgeable about these kinds of programs should be able to provide you with information as to whether or not this is an option for you. Keep in mind that market conditions can affect the viability of down payment assistance programs.
“It can be hard to find a seller willing to work with buyers who need to use these programs when you’re in a seller’s market,” says Moskowitz. He adds that when sellers have several buyers vying for their property, they’re usually not willing to accept a buyer that has a lot of hoops to jump through prior to closing.
9. Do you offer points, and should I use them?
Points can be a confusing concept, especially for first-time homebuyers. Basically, buying points provides you with the opportunity to “buy down” your interest rate by pre-paying some of the interest.
One point typically costs 1% of the mortgage amount, which reduces your interest rate by approximately 0.25%. This can be a good option for buyers who have the extra money available at closing, as they’ll enjoy a lower interest rate and lower payment.
Buyers who aren’t planning to remain in their home for several years are probably better off refraining from buying points, as it takes time before the savings created by the lower interest rate exceeds the money you paid at closing to buy the points.
And if you don’t have a lot of extra cash after the down payment, you may just want to skip buying points. That money could go toward home improvements to build sweat equity, closing costs, or maybe even a slightly larger down payment.
10. What is your average closing time frame, and do you guarantee the closing date?
Generally speaking, you can expect your loan to take 30 to 60 days to close. But that time frame can vary greatly depending on where you live, the type of loan you’re getting, the demand for real estate services in your market — and, of course, your lender. Delays in closing are stressful for buyer and seller alike, which is why it’s good to ask your lender upfront what kind of closing timeline you can expect.
According to data from Ellie Mae, a software company that processes 35% of U.S. mortgage applications, the average time to close on a loan was 49 days as of November 2020. There are many things that can pop up that might delay your closing, from home inspection issues to title problems. While most lenders don’t offer any kind of guarantee on your closing date, it doesn’t hurt to ask what their policy is on timely closings.
11. What does the loan process look like?
Every lender is slightly different in regards to how their loans are processed, but there are still some across-the-board requirements that come with nearly every home purchase.
In order to avoid any surprises, ask your mortgage lender what kind of documentation they need, and start getting that together as soon as possible.
You’ll also want to know what you are responsible for as a buyer, and what they are responsible for, and make sure you understand both their role and your role in the loan process. Find out who orders the appraisal and when that happens, how the approval process works, and what forms you might need to provide to verify income and employment, as well as any other required documentation.
12. How often will you be in communication with me during the process?
A lender who doesn’t call you back probably isn’t one that you want to use to buy a house, so be sure to ask how available they’ll be during this process. Some lenders work as a team, and there may be more than one person you can reach out to, which can be really important if there are some last-minute issues that need to be resolved. You want a lender who will keep you in the loop throughout the entire process.
13. Do you handle underwriting in-house?
Underwriting is the part of the mortgage loan process where the lender reviews all of the documentation you provided for your loan, making sure that everything is correct, there are no discrepancies, and no other documentation is needed. Some lenders do their loan underwriting in-house, which can make turnaround times faster and communication easier. A loan that has to be sent out for approval can add time to your closing date, so if you can find an in-house lender, that’s often an advantage.
14. How do I lock my interest rate, and do I have to pay to lock?
At some point during the loan process, your lender will ask you if you want to lock your interest rate.
This means that your loan’s interest rate should not change prior to closing, whether interest rates go up…or down. That is, unless your rate lock expires — they’re usually good from anywhere between 30 and 90 days.
It’s usually a good idea to lock your rate as soon as you can, unless you really want to take a gamble on the rates dropping. And most lenders don’t charge a fee for a rate lock, so if you talk to a lender that does, it’s a good indication that you should look carefully at their fees to make sure you’re getting a good deal on your mortgage.
If you’re concerned you might miss out on the lowest possible interest rate, ask your lender if they offer a float-down option. Essentially, if this is an option, they’ll allow you to change your interest rate once before closing if rates happen to drop and you can get a better deal.
15. How much will my monthly mortgage payments be?
This question is a crucial one, as your monthly payment is what directly affects how much house you can afford.
Your payment doesn’t just include the principal and interest on your loan, either. It will also include property taxes, homeowner’s insurance, and mortgage insurance if that’s part of your loan.
It’s impossible to know what your exact mortgage payment will be until you’re under contract on a home, your loan has been approved, and you’re nearing the closing table, but your lender can help give you an estimate of what your mortgage payments might look like at different price points.
Whatever you qualify for, you need to make sure you’re comfortable with the payment amount (because you’ll be making this payment for a long time!) — and if you’re not, see what adjustments you can make to help get that payment lower.
16. What lender fees do I need to pay?
Lender fees can encompass everything from application fees, loan origination fees, and broker fees.
Fees can vary greatly by lender, and they can go up to 3% of the loan amount, which can be substantial! However, some lenders don’t even charge them (HomeLight Home Loans doesn’t!), so if you’re shopping for a mortgage lender, ask about their lender fees and factor that into your decision.
These fees can add thousands to your closing costs, which can be quite a shock if you aren’t prepared for them.
17. What about those closing costs?
Closing costs, which are separate from your down payment, can amount to anywhere from between 2% and 5% of your loan amount. In addition to lender fees, you may have to pay title fees, escrow fees, property taxes (you may need to pay at least a portion at closing, depending on when you close and when taxes are due), homeowners’ insurance premiums (you usually have to pay a year in advance), title insurance, appraisal fees, and recording fees.
“Always find out what your total closing costs are going to be,” says Moskowitz. “I had a situation once where a buyer found out right before closing day that there was an additional $4,000 in closing costs that they didn’t expect.
“We ended up getting both the lender and seller to make some concessions so the closing would still happen, but sometimes it does cause things to fall through.”
18. Do you plan to sell my loan after I close?
It’s very common for a mortgage loan to be sold after closing or for a lender to transfer your loan to be serviced by third parties, so don’t be surprised if a month or two into your new loan, you get a notification that another lender or servicer is taking over.
Lenders often sell the loans, freeing them up to finance more mortgages. Others might utilize a third party to handle the servicing of your loan, so your payments will be sent somewhere specific. Even though it’s a common practice, it’s good to confirm with your lender so you aren’t surprised when you get notified that they’ll no longer be servicing your mortgage.
19. Do you charge a prepayment penalty?
Some lenders charge a prepayment penalty if you pay your loan off early, whether it’s by selling your house, refinancing, or just paying it off with your own money. Costs on this can vary, from a small percentage of the remaining loan balance to a set fee, and they usually apply if you pay the loan off within the first three years of the loan.
Be sure to go over this with your lender, so that you don’t end up paying thousands just to pay your loan off!
Understanding the ins and outs of your mortgage loan might initially seem intimidating, but making sure you have all your questions answered beforehand will help set your mind at ease.
You’ll have a better understanding of what your lender can do for you, and with the help of an experienced real estate agent, be able to navigate the entire process like a pro.
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