Choosing the right mortgage lender is one of the most important decisions you’ll make as you get ready to buy a house. Different lenders will offer slight variations in terms, rates, and fees. While these differences may not appear to be significant at first glance, keep in mind that even a slight difference can affect the total cost of your home over the life of the loan.
The right mortgage is the product of more than just the best rate and terms. You'll want to choose a mortgage lender who you’re comfortable with. You want someone who will help you think through your needs. A good mortgage lender will be sure to point out what’s going on in the fine print and help you make an informed decision. Here are 16 questions to ask a mortgage lender.
1. What types of mortgage loans do you offer, and which one is best for me?
There isn’t a one-size-fits-all type of mortgage. Deciding which type of loan is right for you depends on many different factors — your income, credit score, down payment, home price, and more. You may even qualify for a specialized home loan. Certain specialized loans cater to low-credit or low-income buyers, veterans, contract, and self-employed workers. Learn more about the types of mortgage loans here.
When talking with a lender, make sure to give plenty of detail on your situation. If they recommend a specific loan option for you, have them put that option (or several options) in writing so you can understand the differences. It's important to educate yourself about the strengths and weaknesses of each mortgage loan option.
Never be afraid to ask questions. If a fee or cost looks odd to you, ask for an explanation. If they seem to have your best interests in mind, move forward. If you’re uncertain, keep interviewing other lenders.
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2. How much of a down payment will I need?
If you can manage a 20% down payment, you’ll avoid paying for private mortgage insurance (PMI). However, there are loan types with lower down payment requirements and qualified buyers with a down payment of less than 20% can still find mortgage options. Ask your lender if they participate in any down payment assistance programs. If they do, they can tell you if you qualify.
3. Do I need to pay private mortgage insurance (PMI?)
Unless it's a VA loan, any borrower making a down payment that’s less than 20% will have to pay for PMI. If you aren’t eligible for down payment assistance, you still have options to help pay for PMI. Ask your lender to break out the monthly amount for your PMI.
4. What are the interest rate and the annual percentage rate (APR)?
Your mortgage interest rate is determined by factors like your credit score, the location of your home, your down payment, loan type, term, and the amount you are borrowing. Your APR includes the interest rate and any other fees charged by the lender to originate the loan. The APR gives you a good idea of the total cost of the loan.
5. Why is my interest rate different from my APR?
Your mortgage interest rate is the cost you pay each year for your home loan, which will be shown as a percentage rate. Your mortgage interest rate does not take into account the fees you may have paid to your lender to complete your loan.
On the other hand, your APR, which is also expressed as a percentage, is the annual cost of your home loan, including fees. The most common fee is a loan origination fee but there are several other lender fees that may also apply, like processing or document prep fees, that could influence your APR.
6. What will my monthly payment be?
As you move into the home-buying process, the first step is to learn how much home you can afford. A lender will review your income, assets, and credit and provide you with an estimated monthly payment that you can afford. This will in turn help drive the price range that you can qualify to buy. The items that will play into your monthly payment are - principal and interest (repaying the loan), property taxes, homeowners insurance, and HOA/condo fees if applicable.
7. Do you offer mortgage points?
Mortgage points, or “discount” points, are optional fees you can pay at closing to buy a lower interest rate. This can help you save on the overall cost of the mortgage loan. The cost to buy a mortgage point is equal to 1% of your total loan. However, how much each point lowers the rate varies by lenders.The power a mortgage point has to lower your interest rate depends on your specific mortgage loan and the overall interest rate environment.
Always look for a mortgage lender that offers mortgage points. You may or may not decide to purchase the points, but you’ll want the option. You should also be wary of lenders that automatically put points on their upfront fee sheets and loan estimates. Always get a no-point option to compare to.
8. How long can I lock in my interest rate? What does it cost to extend my rate lock?
When you go under contract, it is time to look at locking in your interest rate. Depending on when you are closing, you will need to lock in long enough to get you through your closing date, and maybe slightly longer, as there is a cost to extend your rate beyond the amount of time you choose to lock it in. Your rate lock is associated with the property address that you are buying, so if you do not end up buying that home, your rate lock will be canceled. 30 days is the typical amount of time you will lock in your rate for, and the longer you lock in the rate, the potential for the higher rate and cost.
9. Are you doing a hard credit check on me today?
Lenders typically make a hard credit inquiry as part of the mortgage pre-approval process. However, they will ask for your permission before doing so. They need to do this to give you a firm interest rate quote. A hard inquiry, or hard credit check, notifies the credit bureaus of your intent to take out additional credit.
If you ask a lender for a prequalification to see how your finances stand, they’ll make a “soft” inquiry, which is less rigorous and does not register with the credit agencies. When you’re shopping for more than one lender, be sure their hard inquiries take place within a 45-day window to keep the effect on your credit to a minimum.
10. Do you offer preapproval or prequalification?
During a prequalification, a lender asks about your assets and income and pulls a credit score to provide an estimate of how large a loan you can get. For a preapproval, the lender will verify your credit score, income, and asset information with documents you provide, including W-2s, bank statements, and tax returns.
11. What are my estimated closing costs?
Closing costs are all of the fees that you pay to close on your home purchase. Typical closing costs include appraisal fees, origination fees, attorney fees, and title insurance. Your specific closing costs will depend on where you are buying and the price of the home. Closing costs will usually run 2% – 5% of the total value of your loan. Your lender can provide an estimate based on average costs for the price range that you are looking to buy in. Be sure to ask if any of the fees or inspections are optional.
12. Do you charge an origination fee, application fee, or any other lender fees?
Most lenders charge an origination fee, processing fee, or underwriting fee, to cover the time and cost of processing and closing the loan. It’s important to ask them if any additional application fees or lender fees are built into the interest rate or paid separately – they are obligated to disclose this information.
13. What costs or fees will I be required to pay before closing?
You will pay most of the costs or fees associated with buying a house at the time of closing. The only fee you will typically need to pay upfront is the cost of the home inspection. Some lenders do require a lock-in fee or for you to pay for the appraisal upfront to prevent you from changing lenders.
14. Do you guarantee on-time closings?
Many lenders offer a guarantee and a credit if they cannot make the closing date based on something in their control. The lender is always working towards the date in the contract and will have to notify parties if they cannot meet that date.
15. Is there a prepayment penalty?
If your lender allows you to pay off your loan before the end of its term, ask whether there are any prepayment penalties. Some mortgage lenders charge prepayment penalties to dissuade borrowers from making extra payments, refinancing their loans at a lower rate, or selling their home before the loan is due. Prepayment penalties enable lenders to recoup some of the money they would earn on your loan if you continued to make monthly payments through the end of your loan term.
To find a mortgage lender you can trust, ask many questions to ensure you are fully informed about the process. Shop for a lender who is forthcoming with answers – you want to know they have your best interests in mind.
“An invaluable piece of advice I can offer is to collaborate with a lender who prioritizes communication,” shares JOHN LARSON - VP / Branch Manager | Greenway Funding. “By fostering strong communication, you'll gain a clear understanding of the process, have the flexibility to make adjustments as needed, stay on track with your timeline, and prevent unexpected surprises. Take the time to speak with a dependable lender who is eager to address your questions and is available for communication at your convenience.”
LEGAL: Redfin does not provide legal, financial, or tax advice. This article is for informational purposes only, and is not a substitute for professional advice from a licensed attorney, financial advisor, or tax professional.