20 key questions to ask your mortgage lender

If the prospect of securing or refinancing a mortgage seems daunting, you’re not alone. The mortgage process can be complicated, with a lot of steps and to-do items to check off before your loan is approved.

Don’t be afraid to ask questions at every turn and be relentless in vetting lenders so you know exactly what you’re getting with your home loan.

Here are some questions every borrower should ask when considering a home loan or refinance.

1. What types of home loans do you offer?

If you know that you want a particular type of mortgage, you should check that your lender offers that product. For instance, if you’re a service member on active duty and you’d like to take advantage of a VA loan, asking if your lender supports VA loans is a natural place to start.

Here are a few of the most common types of home loans to consider:

• Fixed-rate mortgages: Your interest rate will never change with these home loans, so you can expect to pay the same amount each month through the life of the loan. By far the most common options are 30-year or 15-year fixed-rate mortgages, although some lenders may offer home loan options that stretch 10, 20 or even 40 years.
• Adjustable-rate mortgages (ARM): After an introductory fixed-rate period, interest rates on adjustable-rate mortgages are recalculated according to a predetermined schedule. Among the most popular options are 5/1 and 7/1 ARMs, in which interest rates are readjusted every year after the fixed rate term. More recently, however, 5/6 and 7/6 ARM options have become common. With these mortgages, interest rates are reset every six months rather than every year after the fixed-rate period.
• FHA loans: Government-insured loans like FHA home loans make it easier for more buyers to secure a mortgage. FHA loans are especially appealing because prospective homebuyers can secure them with a down payment option as low as 3.5% of the purchase price.
• VA loans: VA loans offer active and retired service members, as well as surviving spouses, the opportunity to take out a home loan with more flexible credit and financial requirements.
• Jumbo loans: If you’re in the market for a large home, you’ll likely need to take out a big mortgage. That’s where jumbo loans can help. These types of mortgages exceed current conforming limits, so lenders will be extra diligent about checking your loan qualifications.

2. Can you recommend the right mortgage for me?

If you’re buying your first house or want to refinance your mortgage to get a better interest rate, you may not be sure which type of home loan will net you the best terms. While certain home loans are standard across the industry, such as the 30-year fixed-rate conventional loan, you should explore all your options. Your mortgage lender should be able to walk you through the mortgages available for your situation and make a qualified recommendation.

3. What are current mortgage rates?

Interest rates go up or down according to changing conditions within the mortgage lending industry as well as the global economy. Lenders use that as a baseline and set their own interest rate, depending on the applicant’s credit history, financial records, type of home loan and other factors. Although you won’t know for sure what interest rate you’ll qualify for until you receive a pre-approval letter, the lender’s current mortgage rates will give you an idea of what to expect.

4. How much will my mortgage cost?

Interest rates and loan amounts don’t tell the full story when it comes to figuring out how much you’ll wind up paying for your mortgage. For many buyers, the most important number is your monthly mortgage payment, and there are a number of expenses that go into that:

Although you’re still in the early stages of the mortgage process, your lender can give you an idea of how much you’ll pay each month for your desired loan amount. Don’t get too attached to that specific dollar figure, though, because the final numbers can, and likely will, change.

5. How big a loan can I get?

Before you can start house hunting, you first need to know what your budget is. There’s no sense in falling in love with a house only to find out you can’t afford it. A mortgage lender can help set the right expectations for your home search by looking at your income, savings and assets to give you a ballpark figure on how much you can qualify to borrow.

6. How much house can I afford?

What you qualify for and how much you can comfortably afford can be different amounts. While lenders are generally judicious about handing out large home loans, you could still find yourself overextended on your mortgage if you’re not careful. Even before you talk to a lender, you can use a home affordability calculator to get a rough idea what your budget should look like.

7. What information do I need to provide?

Digital mortgages have made the approval process faster and more seamless than ever, but you still need to provide details about yourself before a lender will provide a pre-approval letter. Information mortgage lenders require includes:

Lenders will also ask for the same information relating to any co-borrowers on your mortgage, such as a spouse. Gathering this information will likely involve running a credit check, so keep that in mind if you’ve had multiple inquiries into your credit history in recent months.

8. What will the credit check cover?

Some credit checks are more in-depth than others and are more likely to set off warning bells for credit reporting agencies. Talk to your mortgage lender to understand the scope of the credit report so you can anticipate any issues that might come up and avoid hurting your credit score by scheduling several inquiries in a short period of time.

Keep in mind that credit agencies will sometimes group multiple inquiries if they serve the same function. In this case, credit bureaus may recognize repeated credit checks over the course of a few days or weeks as you shop for a mortgage that suits your situation. That’s not always the case, though, so be sure to ask for clarification before agreeing to a credit inquiry.

9. How quickly can I get my pre-approval letter?

With digital mortgages, the mortgage loan pre-approval process may only take a few hours. In a heated real estate market, you want to act fast to get your offer in before other potential buyers. A slow or unresponsive lender could stand in your way of snagging your dream home.

10. Can I lock in my mortgage rate?

Interest rates can fluctuate from month to month, week to week or even day to day. It’s possible that the interest rate your lender offers at the pre-approval stage will be either higher or lower than the rate you qualify for when your loan is finalized. If you’re worried that interest rates will go up in the intervening weeks or months, you may want to lock in your mortgage rate as soon as possible.

11. How big a down payment do I need?

Conventional wisdom says that homebuyers need to be prepared to put down as much as 20% of the total purchase price as a down payment. Mortgage lenders are a little more flexible on that number these days, though.

Conventional conforming loan programs may offer down payment options from 3% to 5%, depending on the circumstances. You can also take advantage of various government programs, including VA, FHA and USDA home loans, that allow low down payments. In some cases, these programs accept down payment options as low as 3.5% of the sale price. In fact, VA and USDA loans could often come with 0% down payments options.

If you choose to go with a conventional mortgage, keep in mind that you’ll need to pay private mortgage insurance (PMI) until you’ve gained 20% equity in your home.

With an FHA loan, you may pay PMI throughout the life of the loan unless you refinance. Keep in mind that this extra expense doesn’t contribute to your equity, so while you don’t necessarily need to put down a large down payment, you might save more money in the long run if you do.

Even so, PMI might be worth the cost to buy a home sooner and start building equity. In any case, check with your mortgage lender to see what kind of down payment you’ll need to secure financing.

12. What are my options if I can’t afford a large down payment?

While a larger down payment may be recommended in some cases, your mortgage lender should be able to provide you with alternatives if you don’t have the funds to make that happen. Those options may include:

There’s always some inherent risk to taking out new loans to cover the costs of other loans, so that’s a financial decision you should consider. Your mortgage lender should be able to answer any questions you have about these down payment alternatives.

Not all lenders are approved to offer FHA loans, for instance. If you know you’re going to need extra assistance covering down payment costs, it’s best to get ahead of those concerns.

13. Which closing costs and fees will I need to pay?

Whether you’re buying a house or refinancing an existing mortgage, you should expect to pay closing costs and other associated fees. Ask your mortgage lender to itemize every closing cost, including expenses like:

In some cases, lenders may build these costs into the interest rate and mortgage points. You still pay closing costs, but the sting might be a bit less since they’re baked into other aspects of the mortgage.

When vetting mortgage lenders, be sure to ask about these closing fees as they add to the total cost of your home loan.

14. Are there any penalties I should be aware of?

You may want to start chipping away at your 30-year mortgage and pay it off ahead of your original amortization schedule.

However, some lenders may charge a prepayment penalty if you are especially aggressive in paying back your loan. Usually that means covering a large chunk of your mortgage in the first few months or years of your loan agreement.

Often, prepayment penalties only apply to transactions involving properties you don’t live in, so you probably don’t need to worry too much about these penalties, but it’s worth asking about so you know what your repayment options are.

15. What about servicing fees?

Servicing fees are relatively uncommon in mortgage lending. Even so, if there are added costs that your lender fails to disclose up front, you might get an unwelcome surprise when you see your escrow account. Ask your lender about any servicing fees they might charge so you know what to expect.

16. How long will it take to process my home loan?

When buying a house in a competitive real estate market, you need every edge you can get. That means polishing your offer so it’s as appealing as possible to sellers. If you’re dealing with a seller who’s looking to unload their house as quickly as possible, they’re probably not going to want to wait while your lender processes your loan.

Speedy loan processing can give you an advantage as a prospective homebuyer, so be sure to ask how long it will take to finalize your loan. Refinancing a home loan isn’t as time-sensitive, but it’s still good to know ahead of time.

17. Do you handle underwriting internally?

Underwriting reviews your qualifications as a borrower and assesses the amount of risk the lender is taking on by extending you a loan. Your loan approval isn’t final until the underwriter completes the review.

Some mortgage lenders assign underwriting to third parties, which can create delays and miscommunications. Lenders with in-house underwriting teams are often able to process loans quicker, avoid errors and keep you up to date on the status of your home loan. You’re better off working with a lender that handles its own underwriting, so be sure to ask about it.

18. What happens if the home appraisal is too low?

Borrowers are usually more concerned with any issues that might come up during the home inspection, but don’t skip the appraisal process. Your lender won’t overlook it. Mortgage lenders rely on home appraisals to ensure that the property is adequate collateral to support the loan terms.

If the home is worth less than the asking price, you may need to go back and negotiate with the seller. In a worst-case scenario, the lender will deny the loan for insufficient collateral to meet the loan terms. Don’t let an unexpectedly low appraisal derail your homebuying ambitions; ask your lender what contingencies might be in play so you won’t be caught off-guard.

19. Who is going to service my mortgage?

When buying a house, you might assume that your lender will hang onto your mortgage through the life of the loan. But that’s usually not the case. You should expect your lender to bundle your mortgage into a mortgage-backed security and sell it on the secondary market.

That may sound a little fishy, but it’s standard in the mortgage lending industry. Without these transactions, it could be a lot more difficult for the average buyer to secure a home loan.

When lenders sell securities to investors, they can use the proceeds from that sale to fund more loans, so more people can take advantage of mortgage lending services. Otherwise, lenders would have to finance loans independently, which could lead to more restrictive lending practices.

Most of the time, borrowers don’t even notice who owns their loan note. The one thing that might change is where you send your mortgage payments. Sometimes, lenders will sell the note but retain servicing obligations.

It’s best to ask if the lender will continue servicing your mortgage so you know for sure who you’ll deal with when you make payments.

20. Do you offer mortgage points?

Whether you’re taking out a mortgage on a new house or refinancing your home loan, you’re going to want to get the lowest interest rate possible to reduce your long-term housing costs.

If you’re not satisfied with the financing terms your lender offers, you may be able to purchase mortgage points to lower your rate. This is what’s known as “buying down the rate.” Not all lenders offer mortgage points, though, so you should ask whether this is an avenue worth exploring.

Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Refinancing your mortgage may increase costs over the term of your loan. Restrictions may apply. 

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