Whether you are working with a loan officer or mortgage broker, it is essential to ask questions.
Before looking at homes, it’s wise to get your selection of a lender squared away first. Preparing to get a loan is asking your mortgage lender the right questions.
When you first start looking for a lender to help you buy a home, it is normal to feel like it’s a one-way street—you need the money, so anyone who will offer it to you seems like someone you should do your best to listen to.
When buying your first house, many things can seem foreign to you.
But in reality, you are an essential customer for your lender. Your business is critical to the company.
It’s how they make their money and how they stay in business. So it is worth stepping back for a moment to orient yourself correctly.
As with any business deal, you must look for your best interests and act confidently. Understanding how to choose a lender is critical in shopping for a home.
The terms and conditions you get on your mortgage will be crucial in your financial picture for years to come.
It makes sense to do your best to vet the mortgage lender, the interest rate, and other loan terms.
1. What Documents Will I Need to Get a Loan?
One of the most important questions you will ask your loan officer or mortgage broker is what documents they need. If the mortgage officer is worth their salt, they’ll tell you before you even ask.
The mortgage documents required to grant a home loan will vary depending on your chosen program.
Depending on the loan program you end up you’ll more than likely need these things to grant a mortgage
Identification – either a driver’s license, passport, or official state/federal ID.
Income – including 30 days of pay stubs, your previous two years of federal tax returns, your last two W-2s, and proof of any additional income.
Accounts include bank statements for the last two cycles and investment or retirement accounts.
Property – a statement showing the settlement of your prior home if you had one.
Additional documents – forms such as a gift letter from a family member helping financially, landlord contact info (if applicable), letter of explanation for such problems as credit issues, and divorce-related documents (if applicable).
2. Can You Explain Which Types of Loans Are Best Suited For My Needs?
Watch out for loan officers who start peppering you with options before listening to your story. Different types of loans make sense for different types of borrowers.
Give the mortgage lender your financial picture and have the loan officer explain what options are available and how they would meet or not meet your needs.
There are tons of mortgage programs for buyers. Not every mortgage option is going to be suitable for your specific financial situation.
Should you opt for an FHA loan? Does a conventional mortgage make the most sense? Are you a veteran? Maybe a VA loan will be your best option.
Often, buyers ask if they should use an FHA loan or a conventional mortgage.
An exceptional mortgage broker will detail which loan programs make the most sense for you and why. Getting the best mortgage rate and terms for your needs will come down to asking the mortgage lender the right questions.
The mortgage officer should then have the ability to plug in the best package for you.
Buyers who rush into getting a loan can find themselves stuck with bad financing terms.
3. Do You Approve Loans In-House?
Do you approve your loans in-house? You will find various mortgage lenders, some with more capabilities than others.
The loan officer is the person you interact with, but others will be involved, like the mortgage underwriter, who will determine if you get the loan.
A company that approves loans in-house will be better equipped to adapt to potential hurdles in your mortgage.
For example, if there is a problem with your credit report, an in-house underwriter could discuss it with the loan officer and get it ironed out.
An out-of-house underwriter might deny the loan and move on with the following application.
4. How Long Will Mortgage Approval Take?
Finding out how long it will take to get your mortgage commitment is a crucial question to have an answer.
When you write an offer with your buyer’s agent, one of the more essential terms in the offer will be the mortgage financing contingency date.
It would be best if you had something that works with your chosen lender. There is no guarantee that a seller will grant a mortgage extension.
It is essential to be on the same page with your lender with critical contract dates.
5. What Kind of Down Payment Do I Need to Get a Loan?
Lenders still desire the standard 20% down payment, but that does not mean it is required to get a mortgage, far from it.
The need for a twenty percent down payment is a myth that’s traveled far and wide for years.
Some lenders will work with you even if you have down as little as 3%.
There are, in fact, three percent down conventional mortgages now available. And with specific specialized loan programs like FHA or VA loans, you can also get a loan with zero to 3.5% down.
The average down payment for first-time home buyers is around 6 percent, and for second-home buyers, around 11 percent.
Whatever the circumstances, you need to know the requirements for getting the loan before moving forward.
Keep in mind that it might be wise if you have twenty percent to put down. By having a twenty percent down payment, you will avoid paying private mortgage insurance, which can be costly.
Those who put less than twenty percent down will see how much of a burden the PMI payments can be. They will research how to stop paying private mortgage insurance as soon as possible.
6. Are There Any Special Financing Programs Available to Me?
Another intelligent question to ask a mortgage lender is whether any special mortgage programs could benefit your situation.
Approximately 2500 specialized programs around the country help buyers get a home. There are many options, most of which won’t apply to you. But maybe one or more of them do apply to you.
An outstanding lender will know what is necessary to guide you to programs that fit your situation. If the one you are talking to has no information or seems to have little interest in helping you in this area, find another lender.
Like any other business, there will be excellent and rotten eggs. If the mortgage officer is more concerned about “closing a deal,” you know, you’re in the wrong place.
7. Do You Charge an Origination Fee?
The origination fee is an expense charged by most lenders for setting up a loan. The lender you are dealing with may or may not have a fee. If they do, this expense may vary compared to the fee charged by other lenders.
You may be able to negotiate the origination fee. It can’t hurt to try!
Again it is vital to keep in mind the total cost of the loan. If one lender has an origination fee higher than another, that should not preclude you from choosing them. It is all about the total financial output on your part.
8. What Other Fees Do You Charge as a Lender?
Lender fees are pretty much unavoidable. They will attempt to make money where they can, above and beyond the interest you pay on your loan. But that does not mean every lender charges the same fees.
You should compare lender fees across several providers and weigh those fees along with other factors before choosing who to go with.
An important question to ask the lender upfront is how quickly they can put a loan estimate together for you.
Years ago, this used to be called the Good Faith Estimate.
The GFE was created to encourage buyers to shop and compare fees before deciding on a lender. The original purpose was to educate consumers on what services to bargain for to get the best interest rate, closing costs, and other terms.
The Good Faith Estimate would list all the costs associated with obtaining the mortgage.
Lenders are supposed to get the GFE to borrowers within three days of completing a loan application. The GFE is now called the loan estimate. The change was made under the current TRID guidelines.
9. What is The Interest Rate I Will Pay, and What Is The APR?
The interest rate you are charged on the loan is a significant factor to consider when choosing a lender.
You also need to pay attention to the APR or annual percentage rate. The APR adds the lender's fees and the interest rate, then divides the total by the mortgage term.
10. How Do You Calculate The Adjustments Made to Your Adjustable-Rate Mortgages?
An excellent question to ask a lender is whether to choose a fixed- or adjustable-rate mortgage.
If you don’t plan to stay in your home long, an adjustable-rate mortgage may be the best option.
For example, you may know you will be transferred within a few years.
You may or may not be interested in an adjustable-rate mortgage with an interest rate that changes periodically.
If you are interested in this kind of loan, you want to get clear answers on when and how the rate might change over the term of your loan.
Some things to consider include the following:
How regularly is the rate adjusted?
Do you provide notice when the rate will be changed, and if so, when?
Is there a cap on how much you can increase the rate?
Is there a limit on how much you can raise the interest rate in a year?
What if rates go down? Does my rate go down, too?
The answers to questions could determine whether you’re better off with a fixed-rate loan.
11. How Does Your Mortgage Rate Lock Policy Work?
When we are uncertain about interest rates, the rate lock can become a vital decision point in the loan. Many borrowers will want to have the comfort of locking their interest rate.
These are the questions you should be asking regarding rate locks:
Do you charge a fee to lock in my interest rate, and if so, what will it be?
How long will the rate lock be for?
Will there be a cost to extend the rate lock? How much will it be?
Will you give me the loan lock in writing?
12. Do You Charge a Penalty if I Repay Early?
Although some states have made it illegal to charge an early payment penalty, some states still allow it. You want to be aware of the consequences in case you try to pay the loan offer early.
Getting the home refinanced or going to another lender could lead to penalty fees with specific lenders. With the number of choices in lenders today, you’re probably better off skipping any mortgage companies that would charge a pre-payment penalty.
13. Can I Get a Pre-Approval For The Loan?
Difference between Pre-approved vs pre-qualifiedA pre-approval letter can make you more competitive when buying a home in a hot market.
Once a buyer sees that you have pre-approval. Pre-approval is not a guarantee but a big step in the process.
Keep in mind that pre-qualification is not the same as pre-approval. Pre-approval is harder to get but is much more reliable than pre-qualification.
With a mortgage pre-approval, a lender will verify your income, employment, and credit scores. With many lenders, a pre-qualification does none of these things.
The seller and listing agent will want a pre-approval letter if you purchase a home. A pre-qualification is worthless.
14. What Should I Avoid Doing to Preserve My Pre-Approval?
Changing your finances can cause a lender to say no, even if you have gotten pre-approval.
Ask the lender for a checklist of things not to do so that you can avoid losing your loan.
One of the most common ways buyers lose their loan approval is by purchasing a car while buying a house.
An excellent mortgage broker will go over everything a borrower should not do so the loan goes through without a hitch.
15. How Likely Do You Think I am to Get The Loan I Want?
The loan officer is one of the best-qualified people to ask about the likelihood of getting the loan you are after. They can give you informed advice on what to do to get the loan and should be able to look closely at your circumstances to tell you whether or not you are likely to be approved.
If you have a steady job, good credit, and an income that doesn’t fluctuate, a lender should be able to give you confidence getting the mortgage won’t be a problem.
Asking a mortgage lender is essential because if you are told no, you must make changes before buying a home.
16. What is The Minimum Credit Score With The Mortgage Programs You Offer?
Knowing there are minimum credit scores to buy a house is essential. Some lenders will have mortgage programs that others don’t offer.
You could be a marginal buyer when you don’t have the best credit score. Getting loan approval will be more challenging.
Asking a mortgage lender this question upfront will be essential.
17. What Will My Mortgage Payment Be?
This a simple question but one you’ll probably be very interested in finding out for financial planning purposes. Your loan officer or mortgage broker can provide your payment schedule.
18. What Are My Closing Costs?
Most buyers want to know what monies they need to bring to closing. Closing costs are highly variable. This will be a crucial question for your mortgage lender. You will more than likely need to get a certified check.
There are many costs when buying a home, but a lender should break out their specific fees.
19. How Does The Loan Estimate Work?
If you don’t know, loan estimates break down the costs of getting a mortgage. Mortgage lenders must provide buyers with a loan estimate within three business days of your loan application.
Lenders must send you a new loan estimate when anything changes with the estimate. Your mortgage costs should only vary minimally from your initial loan estimate.
It is possible that third-party fees for things such as a property survey, title insurance, or real estate appraisal can vary by as much as ten percent.
Always ask your mortgage lender questions when it comes to any fees.
20. What Happens if The Real Estate Appraisal Comes in Low?
Occasionally, home appraisals come in lower than the agreed-upon sale price. When this happens, there is an appraisal gap.
It is good to know how your lender will treat the situation. For example, if the gap is significant, you will likely need to increase your down payment or renegotiate with the seller.
If you have more than twenty percent down, the lender may feel they have ample equity in the property. Asking this question before committing would be wise.
21. Do You Plan to Sell My Loan?
Your chosen mortgage lender may no longer service the loan after closing. If this is important to you, find out upfront. When you run into a tough financial spot, the servicer is who you will speak with.
22. What Will I Need to Bring to Closing?
Any loan officer worth their salt will prepare a buyer before closing. Understanding what is required to bring to the closing table is essential.
Most lenders have similar requirements for borrowers. You can use this house-closing checklist as a reference. It is likely to contain all the requirements for most lenders.
23. Do You Have Any References?
This last question to ask a lender or mortgage broker is essential. Like any other company you are hiring, doing your due diligence is vital. The loan officer you are using should be able to provide you with some satisfied clients.
While you may think the loan terms are the most crucial aspect, the service you receive should never be discounted.
Ask any real estate agent, and they are bound to be able to convey mortgage broker horror stories.
