20 Important Questions to Ask a Mortgage Lender

Many homebuyers know how important it is to interview multiple Realtors before hiring the best one; however, fewer people know that you should talk with multiple lenders.

Just because you get pre-approved with one lender doesn’t mean you have to go with them to secure your mortgage. You can talk to multiple mortgage providers to make sure you get the best rates. 

When you talk to a potential lender, come prepared with multiple questions. Knowing what you want to ask ahead of time can help you make informed decisions so you get the best possible loan. Here’s a good place to start with your interview.

Use these questions to learn about the fees, terms, mortgage options, and additional services provided by your lender. 

Questions About Mortgage Types and Terms

1. What types of mortgage loans do you offer, and which is best suited for me?

This is a good question to start the discussion and review the offerings by the lender. The person you talk to can review popular lending options as well as some potential non-traditional options. They can then go over what each of these loans entails and highlight the ones that best suit your needs.

This question is valuable because you can see if a particular mortgage lender is trying to steer you in the wrong direction. If one person is pushy or only focuses on a single loan type, they could be forgetting their fiduciary duty.

2. What is the best interest rate you can offer based on my financial profile?

Before you meet with a lender look up the average national mortgage rates to get an idea of what lenders are currently approving. When you ask this question, your lender should give you a ballpark response of what most home loans are going for right now. If they offer you a favorable rate, it doesn’t necessarily mean that you are locked in. This is just a preliminary discussion.

Your goal with asking this question is to see if you get a transparent answer from the lender and to see what they think about your buying power. The financial situation of every buyer is unique, so your potential interest rate may vary from the national average.

3. What loan term do you recommend? 

If you have a substantial down payment, you might be able to take out a 15-year conventional loan instead of a 30-year conventional loan. These are two of the most common mortgage loan terms.

The monthly payment on a 15-year loan will be higher, but you might get a favorable interest rate in return. This means the loan is more affordable and the long run.

4. Would you recommend an adjustable-rate mortgage?

If your lender only talks about fixed-rate loans, ask them about adjustable-rate options to see if they are recommended based on your situation. A fixed-rate loan has a single interest rate set when you lock it in.

This means you will pay the same amount of Interest on your first mortgage payment as on your last one. Conversely, adjustable-rate mortgages (ARMs) change based on federal interest rates. When interest rates decrease, your mortgage payment decreases. 

An ARM could be a good option if you are buying a house when interest rates are high.  The main risk is that interest rates will continue to increase, which will drive up your monthly payment even higher.

Talk to your lender about what they are seeing in terms of ARMs and whether this option is right for you. 

Questions About Fees and Costs

5. What are the total closing costs and fees for my mortgage?

This is an open-ended question that allows your mortgage lender to go over the various expenses related to your loan. This is another opportunity to evaluate how transparent your lender is.

They should review the principal, interest costs, origination fees, and any other expenses associated with your loan.

This can also include your private mortgage insurance, taxes, and home insurance if you build them into your loan payment. 

While your lender might not be able to tell you the total closing costs unless you have already made an offer on the house, they should be able to provide reasonable estimates of what you can expect to pay.

6. Do you charge an origination fee?

Most lenders charge an origination fee that is 0.5% to 1% of the loan amount. If you take out a $300,000 loan, there could be a $15,000 difference in your origination fee costs.

By interviewing multiple lenders, you can get an idea of the average origination fees in your area. This is the commission the lender receives on the loan. 

While you can negotiate the origination fee, your lender might increase their proposed interest rate so that they get the funds anyway. By shopping around to different lenders, you can see who has the best overall rates when you look at different financial metrics.

7. Can any of these fees be waived or reduced?

It never hurts to ask your mortgage lender if they can waive any costs. They might provide opportunities for you to save money on the origination fee and other closing costs.

Asking this question of each lender you meet can help you maximize your potential savings and see which bank or credit union has the most flexibility to support buyers.

Questions About Down Payments and Insurance

8. How much down payment will I need?

This is a particularly important question to ask your mortgage lender. they should provide the bare minimum that you need for a down payment and then offer recommendations based on your financial situation. 

For example, the minimum down payment you need for an FHA loan is 3.5%. However, if you put down less than 20%, you will have to pay mortgage insurance. This is an extra fee that is usually 1% of the loan’s value paid each year. 

A responsible lender doesn’t want you to use all of your money for a down payment. They will want you to keep a nest egg to cover emergency costs and home repairs.

However, the less money you put down, the more the lender profits in the form of interest and origination fees. Asking this question can give you an idea of how honest your lender is.

9. Do I qualify for any down payment assistance programs?

Down payment assistance programs are either grants or loans that support people in their dreams of becoming homeowners. These are distributed on the federal, state, and local levels. 

While you can research these programs on your own, it’s worth it to ask your lender about any options they know of.

If your is already familiar with a few down payment assistance programs, they might recommend the best options and will know how to incorporate them into your loan approval process.

10. Will I have to pay mortgage insurance (PMI), and if so, how much?

If your down payment is less than 20% of your home’s value, be prepared to PMI. Your lender should be able to give you an insurance estimate and review how that will affect your monthly mortgage payment.

Unless you already have an offer accepted on a home, your lender might not be able to provide a firm amount for your insurance costs. However, they should at least provide an estimate. Shopping around can help you save on PMI.

Questions About Interest Rates and APR

11. What will my interest rate be?

Your lender might not be able to provide a firm number for the interest rate on your mortgage loan until you make an offer on the house and submit your financial documents for their approval. This doesn’t mean they can’t give you an estimate of what interest rates are right now and how your financial situation will differ from the average loan.

For example, if you have a higher down payment and excellent credit score, then you might have a lower interest rate than most other loans. Different loan turns, like the duration of your loan, can also affect interest rates.

Be wary of lenders that offer firm interest rates immediately and refuse to budge on them. Interest rates are set by the risk the lender takes on in the loan, which means there should be ways to raise and lower your interest rate depending on your financial situation.

12. What is the annual percentage rate (APR) interest rate?

Many buyers fixate on their interest rates when they shop for home loans; however, it is often more valuable to evaluate the APR. The interest rate is the cost of the loan and is represented as a percentage. The APR is your interest rate plus any additional fees and costs that come with the loan – including your origination fee.

Here are two examples to help you compare interest rate vs. APR:

• Mortgage Loan A: 6.25% interest at 8.95% APR
• Mortgage Loan B: 7.25% interest at 8.00% APR 

While Loan A has a more favorable interest rate, it is actually more expensive because of the high APR. In this example, Loan B is the better deal.

Questions About Loan Management and Payments

13. What will my monthly mortgage payment be?

Your lender will set your monthly mortgage payment based on the principal of the loan, the duration, and other fees like your mortgage insurance. If you allow your lender to incorporate your property taxes and home insurance into your loan, they will also build this into your monthly payment. 

Mortgage lenders have specific calculations to set your maximum mortgage payment. They will look at your DTI to see how much you can afford. Most lenders will not approve a loan that exceeds 36% of your DTI. 

You can also calculate your DTI before you start contacting mortgage lenders to get an estimate of what your maximum monthly mortgage payment will be.

14. How much are you willing to lend me?

Most lenders have programs to calculate your loan estimate and maximum potential payment. They will start with your DTI to understand how much you can afford to pay. Your lender will also look at your down payment and credit history when considering a conventional loan.

Learn how much your lender is willing to approve for a home loan and use that information to calculate how much house you can afford. for example, if you have $50,000 in the form of a down payment and your lender is willing to give you $300,000, then you can afford a house up to $350,000.

Even if you have an idea of what size house you can afford, make sure you and your lender are aligned with your house-hunting budget. They might have factored in extra fees and closing costs that you didn’t consider, so your budget could be smaller than you realized.

Once you know your maximum potential loan size, you can start searching for houses in your area that meet your needs.

15. Can I lock in the interest rate, and is there a fee for the rate lock?

Locking in your interest rate prevents your lender from increasing it if federal rates go up. Even if it takes a few weeks for you to reach your closing date, the interest rate – and therefore your mortgage payments – will not change. 

Ask your lender when you can lock in your rate if they’re currently favorable. You can also confirm whether or not there is a fee for their mortgage rate lock. If multiple lenders offer fees for locking in rates, see which ones are lower.

16. What are the terms for early payment or breaking the mortgage?

Talk to your lenders to see if there are any penalties for paying off your home loan early. You should also ask about penalties for breaking the mortgage, which could occur if you decide to move before paying off the house. Many loan terms last 15 to 30 years and you might not want to stay in the same house for that long. 

Penalties for early payment are incredibly unpopular and few lenders add them to contracts anymore. However, it is important to ask to make sure don’t get any surprise fees if you pay off your home loan earlier than expected.

Questions About Service and Communication

17. How will I be updated on the loan’s progress?

Make sure you are on the same page with your mortgage lenders about how they can contact you. Some people prefer to review information over the phone, but you can still request that your primary form of communication be via email if you prefer.

You can also go over the primary times when you can be contacted and the hours when you cannot be reached. For example, if you cannot talk to your lender during normal business hours, see how late they work so you can contact them after 5:00 p.m. Some lenders specifically offer evening operating hours because they understand that their borrowers have full-time jobs.

18. How often will I be updated on the loan’s progress? 

Securing a mortgage can be stressful, especially if you are on a tight deadline. Talk to your lender to see how often they will update you about the application and underwriting process. You can let them know if you prefer frequent communication or only want to talk when there are updates.

19. Do I need to sign all paperwork in person, or are electronic signatures acceptable?

The loan application process is increasingly virtual. Many home buyers can email documents like bank statements and tax returns while the lender pulls information about your credit score from digital channels. Ask if the entire loan process can be done online or if you will need to sign paperwork in person.

This is also a question for your real estate agent and title company. You might be able to complete a virtual closing instead of visiting the title company’s office location. This could give you more flexibility if the closing appointment occurs during work hours.

Questions About Additional Considerations

20. Are there any actions I should avoid before closing on my mortgage?

Certain actions can impact your credit and potentially slow down the mortgage application process. Your lender should review any best practices for preserving your credit score.

For example, avoid applying for new credit cards or maxing out the ones you have. Do not make any major purchases that could reduce your net worth or increase your credit utilization. also, avoid changing jobs until you have closed on the property. 

It’s worth putting your life on hold for a few weeks so you can secure your mortgage and move into your new home.

Review These Questions With Your Realtor

Each of these questions can help you evaluate whether your lender is being transparent, offering fair rates, and supporting you through the home-buying process. You can also talk to your Realtor about any potential questions you should ask.

Your real estate agent is supposed to support you through the house hunting, financing, and closing processes. They can be your ally when securing a home loan. 

To find a real estate agent, turn to FastExpert. You can find some of the best agents in the area who specialize in helping home buyers. Spend some time reading agent profiles to find a representative who is a good fit for your needs. Try FastExpert today.