When you’re ready to buy a home, one of the biggest challenges might be knowing where to start. Before looking at different properties, it’s critical to find a lender that is willing to preapprove you for an affordable mortgage.

“Homebuying is a somewhat long process, and you may need to speak to more than one Realtor or lender to identify the one that you ‘click’ with for a partnership,” says Thomas Stewart, branch manager and senior loan officer at Embrace Home Loans in Culpeper, Virginia. “However, you should definitely not begin viewing homes with a Realtor until you’ve been preapproved for your loan with a trusted, well-qualified loan officer.”

Since a mortgage can last up to 30 years, it’s a good idea to cultivate a solid relationship with your lender from the beginning. Your mortgage lender should understand your unique situation and make you feel comfortable throughout the homebuying process.

Here are the top 15 questions to ask a mortgage lender before applying for a loan.

1. What Types of Mortgages Do You Offer?

Every borrower comes from a different background and will have different needs when shopping for a home loan. The main types of mortgages available to first-time homebuyers are:

  • Conventional mortgages: These are the most common mortgage type and aren’t part of government programs. Conventional mortgages, specifically conforming loans, are subject to maximum loan amounts and other lending rules set by the federal government. 
  • Jumbo mortgages: A type of nonconforming loan, jumbo loans allow people to borrow over the maximum loan limit for conforming mortgages. These loans typically require a higher down payment and stronger credit score.
  • FHA loans: The Federal Housing Administration insures these mortgages designed for first-time homeowners. FHA loans generally have lower requirements for approval compared with conventional mortgages.
  • VA loans: Backed by the Department of Veterans Affairs, VA loans are available to service members, National Guard members, veterans, and surviving spouses. These loans offer special benefits, including low down payments and no private mortgage insurance premiums.
  • USDA loans: This U.S. Department of Agriculture program is targeted toward borrowers in eligible rural areas. Also known as rural development loans or Section 502 mortgages, USDA loans are subject to additional requirements for qualification.

When you’re working with a mortgage lender, it’s important to be upfront about your financial situation to determine which loan is best for your situation. Some questions to ask a loan officer include:

  • Why is one type of loan better than another for my situation?
  • What are the pros and cons of the loan types I am considering?
  • Can I get a loan estimate for more than one loan, so I can see all my options?

2. What Credit Qualifications Are Required?

Once you understand your loan options, the next step is determining what it takes to qualify with mortgage lenders. Although lenders may favor higher credit scores, this isn’t necessarily a barrier to entry. For example, first-time homebuyers could qualify for an FHA loan with a score of 500, while VA loans don’t have a minimum credit score requirement.

“Before going for a mortgage, check your credit activity properly,” says Kimo Quance, a real estate broker with Keller Williams Realty in San Diego. “If you have a credit score of 620, many lenders will see you as eligible for the loan. 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.”

When you’re going through the application process, loan officers will request documentation and other information from you and any co-buyers. This often includes your annual income, your Social Security number, an estimate of your homebuying budget, and which areas you’re considering. Combined with your budget, desired location, and other factors, your credit score will influence your monthly payment and mortgage interest rate.

3. Do You Offer Mortgage Points?

Simply put, mortgage points — aka discount points — allow homebuyers to reduce their interest rate by paying more upfront.

“Sometimes, it makes sense to pay points,” says Peter Zomick, senior director of consumer direct lending at Silverton Mortgage in Charlotte, North Carolina. “The longer one holds the actual loan that they paid points for, the more it can make sense.”  

Generally, 1 point costs 1% of the loan amount. So, with a $200,000 mortgage, 1 point would be worth $2,000. The exact amount of interest that points will take off your mortgage can vary between lenders. That’s why it’s important to ask how much your interest rate will be reduced with each point, and if there’s a limit to how many points can be purchased.

4. Do I Need an Escrow Account?

Also called an impound account, an escrow account is designed to hold the portion of your monthly payment dedicated to paying off regularly occurring expenses, such as property taxes and homeowners insurance. In some states, an escrow account is required as part of a mortgage.

Other questions to ask your mortgage lender include who will manage the escrow account, and who you should contact if there are problems with the amount collected or the funds being distributed. Also be sure to ask if an initial escrow deposit is required as part of your closing costs, and how much the amount will be. 

5. What Is the Loan’s Interest Rate and APR?

The interest rate and the annual percentage rate on a home loan are two different things:

  • The interest rate is what the lender will charge you for borrowing the money.
  • The annual percentage rate reflects not only the interest rate, but also any discount points, brokerage fees, and other charges attached to the loan. As such, the APR on a mortgage will likely be a higher number than the interest rate, since these additional costs are baked into it.

Aside from knowing the interest rate and APR on the loan, make sure that your mortgage lender can explain exactly what fees are included in the APR.

6. What Are the Interest Rates on a Fixed-Rate Mortgage vs. ARM?

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

As the name suggests, a fixed-rate mortgage locks in the interest rate throughout the life of the loan. Although the monthly payment for a fixed-rate mortgage may change based on insurance rates and tax adjustments each year, it will otherwise remain stable each month, since the interest rate on the loan stays the same.  

An ARM has an interest rate that changes over the life of the loan. ARMs often start with a lower interest rate than fixed-rate mortgages, but it can increase or decrease based on market changes. The introductory rate on an ARM will typically remain fixed for a specific period of time — usually between three and 10 years — before adjusting at regular intervals. As a result, your payment could significantly increase in the future.

7. What Are the Income Requirements?

Going into the underwriting process, your lender will need to ensure that you can afford your home. One of the key measurements used is your debt-to-income ratio, which compares the amount you earn each month with your monthly debt payments. These debt payments can include car loans, student loans, and credit card payments. It’s also important to understand what income streams to include, such as freelance work, investment dividends, alimony, or child support.

While some lenders will request documents from the IRS, others may ask potential borrowers to produce tax documents and employer contact information.

8. What’s the Difference Between Being Preapproved and Approved?

Before you begin home shopping, one of the questions to ask your mortgage lender should be about moving from preapproval to approval. Mortgage preapproval means that a lender is contingently willing to approve your loan. Although preapproval implies that you’ll ultimately get a home loan, nothing is locked in until you’re officially approved, which requires a more thorough check of your finances.

Understanding ahead of time what the underwriting process entails can make the transition from offer to ownership easier.

9. How Much Should I Save For a Down Payment?

One of the key items on a list of mortgage loan questions and answers is how much of a down payment you need to buy a home.

A higher down payment can be more difficult to save for, but it could result in a lower interest rate on your loan. On the other hand, while some programs offer options for a small down payment or no down payment at all, you may be required to pay private mortgage insurance until you have 20% equity in your home. A smaller down payment could also mean a higher interest rate.

10. Do I Qualify for a Down Payment Assistance Program?

In some communities, borrowers may qualify for assistance toward a down payment. These programs are often run by nonprofit organizations or through tribal, state, and county-level programs. A qualified first-time homebuyer may receive either a one-time grant 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,” Stewart says. According to Stewart, there are many good programs available, so borrowers should understand their options.

11. Do You Accept Down Payment Assistance Programs?

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

12. Do You Handle Underwriting In-House?

Once you’re preapproved for a loan and settled on a home, it’s time to secure your mortgage through underwriting. During this process, your lender will verify the statements you made on your mortgage application and ensure that you can afford the home. While some companies keep underwriting in-house, others may have it done through a third party.

“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. “Third-party underwriting is when the lender outsources the underwriting to another party and loses control of the decision-making process.”

Before moving to underwriting, be sure to ask who your point of contact will be, and how much the process will cost. Providing any necessary documentation ASAP can help the process run smoothly.

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

Before you can get the keys to your new home, your lender will need to process the loan and set a closing date. On that day, you’ll sign the final paperwork for your loan, and take ownership of the home and move in. Questions first-time homebuyers must ask mortgage brokers include how long the loan processing will take, and how you should expect to get updates.

It’s also important to understand what could delay loan processing. If you open a credit card or get another loan between preapproval and closing, it may be viewed as high-risk behavior, resulting in complications during processing.

Under federal law, you must receive your closing disclosure at least three days before the closing date. This allows you to compare all the final terms and costs to the most recent loan estimate you received. While minor changes are possible, you should address any major changes with your loan officer prior to closing.

14. Are There Any Additional Fees I Should Expect at Closing?

Before selecting a lender, be sure to ask if there are loan origination fees, rate lock fees, and other fees that could be folded into your closing costs. 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. These fees can all add up toward the cash to close. All outstanding fees must be stated on the final loan estimate and closing disclosure.

15. Will I Need To Pay Mortgage Insurance?

Finally, one of the most important questions to ask your mortgage lender is if you’ll be required to pay for private mortgage insurance. PMI protects the lender’s investment in the event that you’re unable to repay your mortgage. The insurance is provided through a private company, and the premium is usually included in the mortgage payment.

For most loans, PMI is required if the borrower makes a down payment of less than 20% of the sale price. Under federal law, you may request to stop paying for PMI once you have 20% equity or more in your home. This request may also be approved if you are current on your mortgage payments and have demonstrated a good payment history. Lenders must terminate PMI once the principal balance reaches 78% of the home’s original value, or once you’ve reached the midpoint of your amortization schedule.

If you have an FHA loan or a VA loan, mortgage insurance will be required throughout the life of the loan.

The Bottom Line on What To Ask Your Mortgage Lender

Although homebuying can be a stressful process, getting your lender to answer these important questions ahead of time should make it easier:

  1. What types of mortgages do you offer?
  2. What credit qualifications are required?
  3. Do you offer mortgage points?
  4. Do I need an escrow account?
  5. What is the loan’s interest rate and APR?
  6. What are the interest rates on a fixed-rate mortgage vs. ARM?
  7. What are the income requirements?
  8. What’s the difference between being preapproved and approved?
  9. How much should I save for a down payment?
  10. Do I qualify for a down payment assistance program?
  11. Do you accept down payment assistance programs?
  12. Do you handle underwriting in-house?
  13. How long will it take to process my loan?
  14. Are there any additional fees I should expect at closing?
  15. Will I need to pay mortgage insurance?

All this information will help you get closer to the right mortgage lender, program, and terms for your financial situation.