Find the best mortgage lender with these 20 questions
If the prospect of securing or refinancing a mortgage seems daunting, don’t worry, you’re not alone. The mortgage process is complicated, with a lot of steps and to-do items that need to be checked off before your loan is 100% approved.
Buying a house or refinancing your mortgage are two of the most important financial decisions you’ll ever make, so it’s only natural that you would want to be sure you’re making the right choice. Don’t be afraid to ask plenty of questions at every turn, and that includes when choosing a mortgage lender.
Be relentless when you’re vetting lenders so you know exactly what you’re getting with your home loan. Not sure where to start? We’ve put together this list of 20 questions every borrower should ask to find the best mortgage lender available.
20 Questions to Ask Mortgage Lenders
Always — always — do your due diligence when vetting lenders. In particular, these are the top 20 questions to ask a mortgage lender if you’re on the hunt for a new house or simply want to refinance your existing mortgage.
- What types of home loans do you offer?
- Can you recommend the right mortgage for me?
- What are your current mortgage rates?
- How much will my mortgage cost?
- How big of a loan can I get?
- How much house can I afford?
- What information do I need to provide?
- What will the credit check cover?
- How quickly can I get my preapproval letter?
- Can I lock in my mortgage rate?
- How big of a down payment do I need?
- What are my options if I can’t afford a large down payment?
- What closing costs and fees will I need to pay?
- Are there any penalties I should be aware of?
- What about servicing fees?
- How long will it take to process my home loan?
- Do you handle underwriting internally?
- What happens if the appraisal is too low?
- Who is going to service my mortgage?
- Do you offer mortgage points?
1. What types of home loans do you offer?
If you know from the get-go that you want a particular type of mortgage, then your first order of business should be checking 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, as well.
- 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. Recently, however, 5/6 and 7/6 ARM options have started to pick up steam. With these mortgages, interest rates are reset every 6 months, rather than every year following the fixed rate period.
- FHA loans: Government-insured loans like FHA home loans make it easier for more people 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: The aforementioned 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 — see the ever-popular 30-year fixed rate conventional loan, for instance — you should explore all of your options. Your mortgage lender should be able to walk you through the best mortgages available for your particular situation and make a qualified recommendation.
3. What are your current mortgage rates?
Interest rates are in a constant state of flux, going up or down according to different conditions within the mortgage lending industry as well as the global economy. Each lender will use that as a baseline and then 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 preapproval letter (and even that’s not set in stone), 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 people, the most important number is your monthly mortgage payment, and there are a bunch of items that go into that:
- Principal
- Interest
- Property taxes
- Homeowners insurance
Although you’re still in the early stages of the mortgage process, your lender can start to 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 of 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 house search by looking at your income, savings and assets to give you a ballpark figure on how big of a loan you might get.
6. How much house can I afford?
What you qualify for and what you can comfortably afford can be two very different amounts. While lenders are generally more judicious about handing out large home loans than they might have been before the 2009 recession, you could still find yourself overextended on your mortgage if you’re not careful. A good lender will give you an honest answer, rather than try and get you signed to the largest loan possible. 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 give a preapproval letter. Often the type of information mortgage lenders require include:
- The amount of money you currently have in your bank accounts
- Your credit score
- Your credit history
- Employment record going back at least two years
- Other assets like property you may own
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?
Not all credit checks are created equal. Some are more in-depth than others and are more likely to set off warning bells for credit reporting agencies. Talk to your mortgage lender beforehand 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.
Another important point to keep in mind is that credit agencies will sometimes group multiple inquiries together 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 simply shopping around for the best deal on a mortgage. 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 preapproval letter?
The aforementioned information should cover everything your mortgage lender needs to run a preliminary evaluation of your loan qualifications. From there, they can decide if you qualify for a loan and approximately how much they’re willing to extend you. With digital mortgages, the mortgage loan preapproval process may only take a few hours or possibly even less time. 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. See how quickly your lender can get the gears turning so you can have a preapproval letter in your hand when you’re ready to submit an offer.
10. Can I lock in my mortgage rate?
Like we said earlier, interest rates fluctuate a lot — month to month, week to week or even day to day. It’s possible that the interest rate your lender offers at the preapproval stage will be either higher or lower than the rate you’re given 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. Not all lenders offer that service, however, so it’s good to ask about it beforehand.
11. How big of a down payment do I need?
Conventional wisdom says that homebuyers need to be prepared to pony up 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 accept down payments anywhere from 3%-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, options as low as 3.5% of the sale price.
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 be left paying PMI throughout the life of the loan — unless you refinance, that is. Keep in mind, 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, rather than wait years and years to save up enough to cover a large down payment. 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 simply don’t have the funds to make that happen. Those options may include:
- Conventional loans offering 3%-5% down payment
- Government loan programs like FHA and VA loans
- Down payment assistance (DPA) programs
- Gifts from parents
- Sale contingencies and other opportunities to use your existing assets
- Bridge loans to cover a certain percentage of the down payment
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 think on before pulling the trigger. Your mortgage lender should be able to answer any questions you have about these down payment alternatives, not least of which is if they support them at all. Not all lenders are approved to offer FHA loans, for instance, and some may not extend bridge loans. If you know you’re going to need extra assistance covering your down payment costs, it’s best to get out ahead of those concerns.
13. What 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 some closing costs and other associated fees. Ask your mortgage lender beforehand to itemize every closing cost, including expenses like:
- Origination fees
- Title insurance
- Inspection fees
- Appraisal fees
In some cases, lenders may build these costs into the interest rate and mortgage points. You’re still paying 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 non-owner-occupied properties — in other words, you don’t live there. 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?
We’ve covered a lot of different fees that might come up during the mortgage process, but there are still others that could pop up after your loan has been processed. Truthfully, servicing fees are pretty uncommon in the mortgage lending world. Even so, if there are added costs that your lender fails to disclose up front, you might get an unwelcome surprise when you take a look at 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 around for months and months while your lender processes your loan. A speedy loan processing time can give you an advantage as a prospective home buyer, so be sure to ask how long it’ll 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 is a bit of a mystery for most borrowers, but that doesn’t make it any less important to the mortgage process. Underwriters review your qualifications as a borrower and assess the amount of risk the lender is taking on by extending you a loan. Your loan approval isn’t final until the underwriter says so.
Some mortgage lenders farm out underwriting to third parties, which can create costly delays and miscommunications. Lenders that have 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 their own underwriting, so be sure to ask about it.
18. What happens if the appraisal is too low?
Borrowers are usually more concerned with any issues that might come up during the home inspection, but don’t sleep on the appraisal process. Your lender certainly 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 entire 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 (MBS) and sell it on the secondary market.
That may sound a little fishy, but it’s standard operating procedure in the mortgage lending industry. Without MBS transactions, it could be a lot more difficult for your average Joe to secure a home loan. Consider this: When lenders sell securities to investors, they can use the proceeds from that sale to fund more loans. That means more people can take advantage of mortgage lending services. Otherwise, lenders would have to finance loans independently, and that would likely 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 — in other words, you still make payments to your mortgage lender rather than a third party. But that’s not always the case. It’s best to ask specifically if the lender will continue servicing your mortgage so you know for sure who you’ll be dealing 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 current 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 check if this is an avenue worth exploring.
In conclusion
Choosing the right lender is one of the most important steps when either buying a home or refinancing your mortgage. But a lot of borrowers stumble when it comes to properly vetting their lenders. Have these questions handy when you’re shopping around for a home loan so you can cover all of your bases.
The mortgage process can seem complicated, but by asking the right questions, you can clear up any confusion and feel more confident about your financing decisions. Still have questions we didn’t cover here? Reach out to one of our lending experts to get the answers you need.