The home-buying process involves a lot of learning, from understanding your options to the ins and outs of making your first payment. Having a list of questions to ask your home loan lender can ensure a smoother experience.
Aim to understand the types of mortgages the company offers and what to expect with the application process.
You don’t need a list of mortgage products. Instead, get the loan officer’s perspective on the best option for you.
Do you qualify for a conventional loan with more flexible loan terms? Or does a government-backed loan, like an FHA, USDA, or VA mortgage, make more sense for you?
Lenders may also offer products or special programs for specific groups, such as first-time home buyers or borrowers with low incomes.
Submitting all required documents can avoid delays in processing your application. You typically must provide recent pay stubs, income tax returns, and W-2 forms. If you’re self-employed, expect to submit business tax returns or recent profit and loss statements.
In a hot housing market, timing is everything. Ask the lender how long the application and approval process takes and how you can stay up-to-date on your application status.
Online mortgage lenders may have faster processes, but not always. The length of time it takes varies based on the lender and the complexity of your financial situation.
If there’s any money you need to put down before closing, try to understand that sooner rather than later.
While a 20% down payment will help you avoid private mortgage insurance (PMI) on conventional loans, you’re often required to pay a lot less.
You may be able to put down as little as 3% on a conventional loan and 3.5% for an FHA loan. VA and USDA mortgages don’t have down payment requirements. Keep in mind that the less money you put down, the more you’re borrowing. A higher loan amount means you’ll pay more in interest and fees.
Ask your lender if you qualify for their down payment assistance programs, if offered. If not, see if they’ll help you navigate any national or local programs you may be eligible for.
Down payment assistance can be in the form of a grant, forgivable loan, or a loan that’s deferred until you sell or refinance the primary mortgage. These programs may be available for first-time home buyers, borrowers with a low income, or applicants who meet other criteria.
Conventional loans usually only require private mortgage insurance if you put down less than 20%. However, you’ll pay mortgage insurance on FHA and USDA mortgages regardless of the down payment. Make sure you understand the insurance requirements for the loan you choose.
You’ll come across several fees throughout the mortgage approval process. Many of them are due at closing. However, a mortgage provider can ask for certain fees before closing, like the application or origination fee.
The interest and annual percentage rate (APR) largely determine how much it’ll cost you to take on a mortgage. Ask these questions to know what you’re getting into.
What interest rate and APR should I expect?
Your mortgage interest rate depends on personal factors, like your credit score and income. But it’s also determined by the lender’s processes. That’s why it’s important to prequalify with more than one.
But don’t just look at the interest rate. Ask about your APR and what goes into it. The APR is often a better measure of the total cost of borrowing since it includes the interest rate plus lender fees or discount points.
Many mortgage providers offer a rate lock, which can protect you from interest rate fluctuations during the loan approval process. While some lenders offer it for free, others may charge a fee. Understand the terms and costs with your loan advisor.
Ask your lender to break down your monthly mortgage payment, which is often more than the principal and interest. Mortgage payments can also include mortgage insurance, property taxes, and homeowners insurance.
The cash needed to close can be a hefty amount. Make sure you know what to expect.
What are my closing costs (and how much are they)?
Closing costs are typically 2% to 5% of your loan, so you’ll want a breakdown of the fees. Some of these costs are lender charges for processing your loan. Other fees go to the government or third parties who handle the appraisal, title search, and more.
Once you understand your closing costs, ask the lender how you can lower them. Lenders have more control over their fees, so they may waive the application or origination fee if you ask.
If you need to lower what you pay at closing, the lender may be able to roll the costs into the loan or apply a lender credit. With lender credits, you take a higher interest rate in exchange for lower or no closing costs up-front.
What is the closing process (and how long is it)?
Ask your lender how long it’ll take to close the loan and whether the process is in person or if you can complete it online.
“Even if you don’t need a quick close, it’s a good question to ask, because it can indicate how prepared or on-the-ball the lender is,” said Ann O’Connell, attorney and legal editor at Nolo, via email. “Of course, the speed at which the closing occurs also depends on the buyer getting all documentation to the lender in a timely manner.”
Make sure you understand all the documents you’ll need at closing. Your loan advisor should be able to provide the details needed for a smooth closing.
These questions will give you an idea of what to expect when repaying your loan.
Your loan servicer is the company that handles repayment. It may be the same lender that originated the loan, but sometimes lenders sell the mortgage to another institution.
“Many buyers aren’t aware that lenders often sell the mortgage after closing, and that the loan might in fact be sold more than once, said O’Connell. “By no means is this a reason to go with another lender. It just means that as a buyer, you’ll need to stay on top of where you should send your mortgage payment each month.”
Some lenders charge a prepayment penalty if you pay off your mortgage early. This can be a percentage of the remaining balance or a certain amount of interest. So if you plan to pay off your mortgage or sell your home within three or five years, this fee won’t catch you off guard.
First-time home buyers should ask about down payment assistance and other programs that can lower home-buying costs. They should also ask fundamental questions about the overall process, such as “what requirements must I meet to qualify,” and “what is preapproval versus prequalifying?”
Prequalify with at least three lenders to get a good sense of the interest rate and loan amount you’re eligible for. You can usually prequalify for a mortgage online by providing basic personal and financial information. While it’s not a guarantee of approval or terms, you can compare offers and show the seller you’re serious about buying.
Before meeting with your mortgage lender, think through how much you plan to borrow and what down payment you can save. This will give the loan advisor an idea of your budget and borrowing needs. You can also gather important financial documents, like your recent pay stubs, W-2s, or income tax returns.
