22 Questions To Ask Mortgage Lenders for First-Time Homebuyers

One of the more 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 22 questions to ask a mortgage lender that can help you sort through your options and find a loan and a lender that work well for you.

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.
• 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 could borrow is essential to figuring out how much house you can afford. The easy way to get a preliminary idea of how much you could borrow would be to apply for pre-qualification. You provide your 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 payment on a home loan fits into your budget should be one of the first questions to ask your mortgage 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 estimates 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, based on some basic financial information. Pre-qualification 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 better 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 getting preapproved 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 real estate broker with Keller Williams 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. Do You Offer a Mortgage Rate Lock?

Interest rates have a big impact on how much your monthly payment is, 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. 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.

7. Do You Charge an Origination Fee?

Some lenders may 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.

8. 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 a lot of money over the life of the loan.

“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.”

9. Is an Escrow Account Required?

An escrow account, sometimes called an impound account, is where your lender will hold the funds it collects from 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 property tax bills and homeowners insurance premiums on time and in full to avoid defaulting on your loan.

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

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

The annual percentage rate represents the overall cost of the loan, and includes the 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 way to compare mortgage offers.

Aside from knowing the interest rate and APR on the loan, ask your mortgage lender to explain exactly what fees are included in the APR.

11. 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.

As the name suggests, 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, which then will adjust based on fluctuations in the federal funds rate at certain intervals. When rates increase, your monthly payment will go up. If rates decrease, your payment will be less.

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.

12. 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% to 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.

13. 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% is the ideal amount and allows you to avoid having to pay for private mortgage insurance, the minimum down payment for a conforming conventional loan is a more affordable 3%. FHA loans require 3.5%, and VA 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 you’d start out owning the home with more equity.

14. 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 senior loan officer at Embrace Home Loans in Culpeper, 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.

15. 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 will verify your finances and determine the final terms of the loan it can offer you.

While many lenders do their own underwriting, some outsource this task to third-party underwriting 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 who your point of contact will be for this part of the process.

16. 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.

17. How Much Are Closing Costs?

In addition to the 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 up enough cash to pay these fees when you’re ready to close on a home.

18. 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 for during the homebuying process, how much they can affect your monthly payment, and if other options are available.

19. What Additional Fees Should I Expect at Closing?

Before selecting a lender, be sure to ask if there are other fees that could 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. These fees can drive up how much cash you need to close the sale.

All outstanding fees must be stated on the loan estimate and closing disclosure.

20. Will I Need Mortgage Insurance?

One of the most important questions 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 throughout the life of the loan.

21. 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.

22. 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, settle 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.

The Bottom Line on What 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.