30 Questions To Ask Mortgage Lenders for First-Time Homebuyers

One of the difficult aspects of buying a home is choosing a mortgage and a lender. For first-time homebuyers, the number of lenders and loan options to choose from can seem overwhelming, and it’s not always easy to know which one is right for you.

Here are 30 questions to ask a mortgage lender that can help you sort through your options and find a loan and a lender that fit your situation and goals.

1. What Types of Mortgages Do You Offer?

When you’re working with a mortgage lender to determine which loan is best for your situation, it’s important to be upfront about your financial situation. You can start out not knowing which type of loan might be best for you and letting the lender’s replies guide you toward an answer. Alternately, if you know you want a certain type of loan — say a Veterans Affairs loan — this question will help you quickly find lenders who offer it.

The most common mortgage types for first-time homebuyers include:

• Conventional mortgages. Conventional loans are not part of a specific government program, though conforming conventional loans are subject to maximum loan amounts and other lending rules set by federal agencies. This is the most common type of mortgage.
• Jumbo mortgages. Also known as nonconforming conventional mortgages, jumbo loans allow qualified homebuyers to borrow more than the maximum loan limit for a conforming mortgage. These loans typically require a larger down payment and a higher credit score.
• Federal Housing Administration loans. The FHA insures these mortgages, which generally have more lenient requirements when compared with conventional loans.
• VA loans. The VA offers affordable loans with no down payment requirement to military service members, National Guard members, veterans, and their surviving spouses.
• U.S. Department of Agriculture loans. USDA loans are for low- and middle-income borrowers buying a home in a qualified rural area.

2. How Much Can I Borrow?

Knowing how much you can borrow is essential to figuring out how much house you can afford. The easy way to get a preliminary idea of how much you can borrow would be to apply for mortgage pre-qualification. You provide basic financial information to the lender, which will give you a rough estimate of what it expects you could borrow. This isn’t a guarantee you can borrow that amount — only an estimate.

3. What Will My Monthly Payment Be?

Understanding how the monthly mortgage payment fits into your budget should be one of the first questions to ask your lender. Remember that your monthly payment likely will be more than just the loan cost. Be sure to ask what the total monthly payment will be after adding in the prorated payments for property taxes and homeowners insurance.

4. Do You Offer Pre-Qualification or Preapproval?

It’s common to start the homebuying process by getting a pre-qualification letter from a lender to help set your budget, and to get preapproval when you’re ready to start shopping for a home. Pre-qualification is an informal estimate of the loan a lender expects to offer you, and is best suited to helping borrowers understand how much they can expect to borrow.

Preapproval still is an estimate, but lenders review your financial documents more thoroughly to come up with a more accurate estimate of how much of a loan they expect to offer you. This is as close as you can get to qualifying for a loan without actually applying for one.

As such, a preapproval letter shows real estate agents and sellers you are prepared to buy. Preapproval usually is valid for 30 to 90 days, so it’s best to wait on this until you’re ready to shop for a home and make an offer.

5. What Credit Qualifications Are Required?

Depending on the type of loan you’re applying for, you may need to meet a minimum credit score requirement.

“If you have a credit score of 620, many lenders will see you as eligible for the loan,” says Kimo Quance, a Realtor at eXp Realty in San Diego. “But also in the post-pandemic era, most lenders prefer looking at your credit activity, which indicates that you are using your account and makes you trustworthy of the mortgage loan.”

Although lenders generally prefer a higher credit score, a lower one isn’t necessarily a barrier to entry. For example, first-time homebuyers may qualify for an FHA loan with a credit score of 500, while VA loans have no minimum credit score.

6. When Will You Check My Credit?

Lenders typically check your credit when you apply for a loan. This is known as a hard inquiry and will temporarily reduce your credit score. Even though this can’t be avoided, it’s good to understand how inquiries work. For example, multiple credit checks from mortgage lenders within a 45-day window count as a single inquiry. That means it won’t hurt your credit if you shop around — or a lender needs to check your credit a second time before closing — as long as it occurs within 45 days.

7. Do You Charge Upfront Fees?

When you close on your mortgage, you’ll pay closing costs and make a down payment. The only fee a lender can charge before they provide you with a loan estimate is a fee to obtain your credit report — about $30. If a lender tries to charge you other fees upfront, it may not be reputable and you should consider this a red flag.

8. Do You Offer a Mortgage Rate Lock?

Interest rates have a big effect on your monthly payment and how much you pay overall for your home — and rates change daily.

If you’re almost ready to buy and interest rates are low, ask the lender if you can lock in your interest rate. A rate lock usually lasts between 30 and 60 days, and you’ll have to pay a fee for it. But as long as you close on a home before the lock expires, you’ll pay that rate regardless of how much the market may have changed in the interim.

9. Do You Charge an Origination Fee?

Some lenders charge an origination fee to pay for the cost of processing your mortgage application. One of the key questions to ask a mortgage lender is if an origination fee applies, and how much it usually is for the type of loan and amount you’re seeking. Not knowing if a lender charges origination fees could add expenses at closing. It also may be a fee you can ask the lender to waive.

10. Can I Buy Points?

Mortgage points, also called discount points, are upfront fees that homebuyers can pay to reduce the interest rate on their loan.

Generally, 1 point costs 1% of the loan amount. So, with a $200,000 mortgage, 1 point would cost $2,000. How much each point reduces your interest rate varies by lender, but in most cases, a lower interest rate saves you money over the life of the loan.

“Sometimes, it makes sense to pay points,” says Peter Zomick, vice president of sales and business development at Arrival Home Loans in Novato, California. “The longer one holds the actual loan that they paid points for, the more it can make sense.”

11. Is an Escrow Account Required?

An escrow account, sometimes called an impound account, is where your lender collects a portion of your monthly payment for property taxes and homeowners insurance. In some states, an escrow account is required. If it’s not required, you can opt out, but you’ll still need to pay your property tax bills and homeowners insurance premiums on time and in full to avoid defaulting on your loan.

12. What Is the Interest Rate and APR?

The loan’s interest rate is what the lender charges you for borrowing the money, expressed as a percentage rate.

The annual percentage rate represents the overall cost of the loan, and includes the loan interest rate, discount points, brokerage fees, and other charges attached to the mortgage. The APR on a loan will be a higher number than the interest rate, since it includes these additional costs. This makes APR a good overall way to compare mortgage offers. Aside from knowing the interest rate and APR on the loan, ask your mortgage lender to explain which fees are included in its APR calculation.

13. What Will I Pay in Total for This Loan?

When choosing a loan, It’s important to know how much it will cost overall. For example, if you’re buying a $400,000 home with a 10% down payment, a 30-year fixed-rate mortgage at 6% would give you a monthly payment of $2,158, and you’d be paying $417,017 in interest over the life of the loan. A 15-year fixed-rate mortgage at the same interest rate would give you a higher monthly payment of $3,038, but you’d only end up paying $186,819 in interest — saving you a whopping $230,198 on your mortgage.

14. Can I Buy a House Without My Spouse?

If you live in a state with a common-law marriage statute, then you can apply for a conventional loan without including your spouse’s name and income in the application. Some government-backed loans, however, require you to include your spouse’s income and debt. Other states have a community property statute, which means that you both equally own all property and assets that you acquire during the marriage, and that includes sharing ownership of the home.

15. What Are Your Rates on Fixed-Rate Mortgages and ARMs?

There are two main types of interest rates for home loans: fixed-rate and adjustable-rate mortgages.

A fixed-rate mortgage locks in the interest rate throughout the life of the loan. This means the amount you pay each month for principal and interest is constant and predictable.

An ARM has an interest rate that changes from time to time, affecting how much your monthly payment will be. Most ARMs have a fixed introductory rate for the first three to 10 years of the loan. After that, the interest rate will adjust at certain intervals based on the federal funds rate. When rates increase, your monthly payment will go up. If rates decrease, your payment will go down.

ARMs often have a lower interest rate than fixed-rate mortgages during the introductory period, after which rates could increase and your monthly payment will go up. Many borrowers prefer the stability of a fixed-rate loan, while others are more comfortable risking an increase down the line to save money during the introductory period.

16. What’s the Maximum Debt-to-Income Ratio?

When underwriting your loan, the lender will calculate your debt-to-income ratio, which shows how much of your income is committed to paying debts such as car loans, student loans, and credit cards.

Many loans set a maximum DTI ratio for borrowers, usually between 43% and 50%. The less debt you have, the lower your DTI ratio and the more room you have in your budget for a mortgage payment.

While some lenders will verify your income by requesting your tax documents directly from the IRS, others may ask you to turn over copies of your income tax returns and other documents. You also can expect to be asked for documents such as current statements for any outstanding loans or credit accounts.

Use our debt-to-income ratio calculator to get started.

17. How Much Do I Need for a Down Payment?

One of the key items on a list of mortgage loan questions and answers is how much you need for a down payment. While 20% allows you to avoid private mortgage insurance, the minimum down payment for a conforming conventional loan is a more affordable 3%. FHA loans require 3.5%, and VA and USDA loans have no down payment requirement.

A higher down payment can be more difficult to save for, but it could result in a lower interest rate on your loan and reduce your monthly payment, and you’d start out owning the home with more equity.

18. Do I Qualify For a Down Payment Assistance Program?

Some nonprofit organizations and local governments help first-time homebuyers afford a home with down payment assistance programs. The assistance may come in the form of a grant that doesn’t need to be repaid, or a small secondary mortgage to be paid off over time.

“First-time homebuyers should absolutely ask questions about assistance programs, first-time homebuyer programs, and no down payment programs,” says Thomas Stewart, branch manager and mortgage loan originator at Waterstone Mortgage in Ashburn, Virginia.

Not every lender accepts down payment assistance as part of a loan application. If you’re planning to get help from a down payment assistance program, be sure to ask your mortgage lender upfront if it works with that program. Down payment assistance programs also could refer you to lenders that accept their funding.

19. Do You Handle Underwriting or Outsource It?

Once you’ve made an offer on a house and it’s accepted, you’ll finally apply for a mortgage with your preferred lender. After the required documents are received, your application goes through a process called underwriting, where the lender verifies your finances and determines the final terms of the loan it can offer you. While many lenders do their own underwriting, some outsource this task to third-party services.

“Lenders that underwrite in-house are in more control of the loan process and can at times move more quickly because they make all of the decisions internally as the underwriters are employed directly by the mortgage company,” Zomick says.

Before choosing a mortgage lender, ask if the lender does its own underwriting, and whom your point of contact will be for this part of the process.

20. How Long Will It Take To Process My Loan?

When the seller accepts your offer, both parties sign a purchase and sale agreement that includes all the details of the sale, any contingencies that must be met, and a closing date. You’ll want to make sure that your lender can complete underwriting and approve your loan in time for closing. You’ll also want to know how often to expect updates on your loan application’s progress.

Additionally, it’s important to understand what could delay loan processing. If there are errors in your loan estimate or mortgage closing documents, such as a misspelled name or an incorrect loan amount, it could set back the process. You also want to avoid doing anything that changes your financial situation during underwriting, such as opening a new credit card or taking out a loan for a new car.

21. Do You Offer Discounts?

Lenders may offer discounts to attract new business when the market gets slow. For example, when mortgage interest rates are high, lenders may offer borrowers a reduced interest rate for the first year of their mortgage. Other lenders may waive certain fees for borrowers who already have an account with them — though you may need to have a minimum amount deposited.

22. How Much Are Closing Costs?

In addition to a down payment, you’ll have to pay closing costs. Common closing costs include home appraisal fees, title search and title insurance fees, prorated property taxes, home inspection fees, homeowners insurance, and homeowners association fees.

Closing costs on average total 2% to 5% of the purchase price, so you’ll need to be prepared to pay them in addition to your down payment at closing. You can try asking the lender to reduce or waive some closing costs, though that may result in a higher interest rate and cost you more overall.

Asking lenders for a rough understanding of closing costs can help you save enough cash to pay these fees when you’re ready to close on a home.

23. Which Fees Are Negotiable?

Certain fees and closing costs can be negotiated with the lender, helping you save money in the process. Some of the more common negotiable fees include surveying, homeowners insurance premiums, and title servicing. However, not all fees can be negotiated, such as taxes. Other charges, such as credit report fees and appraisal fees, are often a set price from the lender.

It’s important to understand every fee you are paying during the homebuying process, how much they can affect your monthly payment, and if other options are available.

24. What Additional Fees Should I Expect at Closing?

Before choosing a lender, ask if other fees might be added to your closing costs, such as rate lock fees. If so, ask for the prices upfront — as well as an explanation of which services you can shop around for, such as the home inspection or title services and insurance.

25. Do I Need To Attend Closing in Person?

Some lenders allow you to close a home sale electronically, preempting the need to attend in person. In what is sometimes known as an e-closing, all of the loan documents are signed and processed in a secure online environment. For some homebuyers, this saves time and money and can reduce the risk of operational errors. Some lenders also have a hybrid option, where part of the process occurs in person, while some documents are signed electronically.

26. Will I Need Mortgage Insurance?

Another important question to ask your mortgage lender is if you need to pay for mortgage insurance, which protects the lender from losses if you’re unable to repay your loan.

The most common type is private mortgage insurance, or PMI. The insurance is provided through a private company, and the premium is added to your mortgage payment. For most loans, PMI is required as long as the buyer’s equity is less than 20% of the home’s value. That usually means they’ve made a down payment of less than 20% of the purchase price. PMI can be canceled once you have 20% equity or more in your home.

If you have an FHA loan or a VA loan, mortgage insurance may be required for a set number of years or for the life of the loan.

27. Is There a Prepayment Penalty?

Getting ahead on a loan can be a good thing for your budget, and paying off your loan ahead of schedule saves you money on interest. But some home loans come with a prepayment penalty, which adds a charge if a homeowner pays off their loan before a certain amount of time has passed.

For example, if your mortgage has a five-year prepayment penalty clause, you would need to pay the fee if you sell your home or refinance your mortgage after only three years.

If your loan has a prepayment penalty, be sure you understand how much it is and under what conditions you would have to pay it.

28. Who Will Service My Loan?

One of the questions to ask mortgage lenders is whether they will service your loan or pass on that task to another company. Whoever services your loan will generate and send out statements, accept payments, handle customer service concerns, and manage escrow funds. Understanding who to turn to with your questions and concerns can save you a lot of time and headaches as you manage your mortgage.

29. What Is the Grace Period?

If you fail to pay your monthly mortgage bill by the due date, you typically will be charged a late fee that’s as much as 3% to 6% of that monthly payment amount. Lenders usually allow a grace period — typically 15 days — before charging a late fee. This can come in handy for homeowners who are waiting to get paid or are temporarily on a tight budget. If you’re more than 30 days late paying your mortgage, you risk damaging your credit score. If you become seriously delinquent, you’ll risk foreclosure.

30. What Bill Pay Options Do You Have?

Your lender likely will offer several ways you can pay your mortgage, such as:

• Online, with either:
  • A one-time payment.
  • Automatic payments.
• In-person or by mail, using:
  • A check.
  • A money order.
• Over the phone, with:
  • A live representative.
  • An automated system.

If you pay by mail, it can take seven to 10 business days to process. If you decide to set up automatic payments online, it’s advisable to do them directly with your lender instead of your bank’s bill-pay feature, which sometimes causes delays.

The Bottom Line on Questions To Ask Your Mortgage Lender

Although buying your first home can be stressful, asking mortgage lenders the right questions will get you the information you need to choose the right loan and lender for you. Most lenders are happy to answer questions. Not only will asking good questions help you learn about the overall process of buying a home for the first time, but it also will get you answers that relate directly to your situation.

Rory Arnold contributed to the reporting of this article.