Before you start working with a mortgage lender, it’s a good idea to ask a series of questions to see what loan products it offers and how well it can serve your needs.
It can be hard to evaluate a financial product you don’t understand well but desperately want. Ease your nerves by going into the conversation prepared with this list of questions—in addition to any questions you have specific to your situation.
1. What Types of Mortgage Loans Do You Offer?
If you already know what type of mortgage you want, it only makes sense to find out if a lender offers that product. Check the lender’s website and confirm with a loan officer before you apply.
If you don’t know what type of mortgage you want, a lender who offers a wide variety of loan products may be able to better match you to the best loan.
A lender with plenty of options can also be a smart choice if you have a small down payment, imperfect credit or want to borrow more than the conforming loan limit. You’re more likely to qualify for a home loan when a lender has more loan types to offer you.
2. What’s the Best Interest Rate You Can Offer Me?
When you’re shopping for a mortgage, one of the main things you want to know is which lender has the lowest rates. Unfortunately, there’s no way to get this information without applying.
You might get a general idea of whether a particular lender has competitive rates by seeing how its advertised rates compare to national averages. But advertised rates don’t usually reflect what you’ll actually qualify for.
The lowest listed rates are based on assumptions about down payment, credit score, purchase price and location that, combined, paint a portrait of an ideal borrower. Your situation may not match it. Plus, mortgage rates change so often that a lender’s best advertised rates can quickly become outdated.
3. What Are Your Closing Costs and Fees?
A lender’s best advertised rate also makes assumptions about the fees someone would have to pay to get that rate. If you read the fine print, you’ll see that a borrower might have to pay points—a fee based on a percentage of the amount borrowed—to get that low rate. If you don’t want to pay points, you’ll get a higher interest rate.
Most lenders also charge an origination fee to cover their costs of handling your loan, such as processing your application and underwriting your mortgage. You’ll also pay a number of third-party fees for things like a home appraisal, credit report, title search, title insurance and closing services. Your lender doesn’t set these fees.
The lender will pick providers for you by default—likely, a company they have a relationship with. That’s not necessarily a bad thing; the company your lender wants you to use may be excellent and competitively priced. But you won’t know unless you exercise your right to comparison shop. In particular, it’s a good idea to shop around for title and closing services.
4. What Are the Key Requirements to Qualify for a Mortgage?
The requirements to qualify for a mortgage will largely depend on what type of mortgage you’re applying for. Most mortgages are heavily regulated by the federal government, which sets minimum borrower qualifications (and sometimes minimum property standards, too). For example, you won’t qualify for a Federal Housing Administration (FHA) loan with a 450 credit score, no matter how big your down payment is.
The minimum requirements that Fannie Mae, Freddie Mac, the FHA and others set don’t determine your eligibility for a loan with a specific lender, though. Lenders can impose higher requirements: For example, a lender might not approve an FHA loan for a borrower with a credit score below 620 even though the FHA allows a minimum of 580 with 3.5% down.
Unless you have excellent credit, a low debt-to-income ratio and are applying for a loan that’s well within your means, it’s not a bad idea to ask a loan officer what the company’s minimum requirements are before you apply.
5. Do You Offer a Mortgage Rate Lock and at What Cost?
Locking your rate while you’re waiting for the loan process to play out ensures that changes in the mortgage market won’t push up your rate and give you a monthly payment you can’t afford.
When you lock your rate for the first time, it should be free. At some point, your rate has to be finalized so you can pass final underwriting approvals and close on your loan.
Rate lock fees are more likely to apply after you’ve done that initial lock. For example, if rates drop, your lender might allow you to re-lock at the lower rate if you pay a float-down fee. You also might have to pay a fee to extend your rate lock if your loan closes late for a reason you could have prevented. Rate lock policies and fees vary by lender.
6. What Are Your Down Payment Requirements?
Similar to loan qualification requirements, minimum down payment requirements are set by federal law for many types of mortgages. However, lenders might ask you to put down more than the minimum, especially if some aspect of your finances makes you a riskier borrower.
7. What Is Your Process for Preapproval?
If you’re buying a home (as opposed to refinancing), a lender’s preapproval process can ultimately determine whether you get to buy the home of your dreams or lose it to someone else.
The best mortgage lenders offer a fully underwritten preapproval. This means they’ve reviewed your finances thoroughly and are committed to giving you a loan as long as the home you want appraises at the right price and meets other property-specific conditions. This type of preapproval allows you to shop and bid with confidence. Ideally, you’ll get this type of preapproval before you start seriously shopping for a home. It’s what you’ll need to make a competitive offer.
What you don’t want is a preapproval process that’s cursory or slow. An automated preapproval process based on inputs you provided can be hit-or-miss. And a preapproval that takes ages to get could delay your homebuying process to the point where you miss out on a property you want or incur extra expenses because you can’t move quickly enough.
8. Can’t I Just Submit My Information Online?
Sometimes, yes. A few lenders do offer fully online mortgages. But most lenders still won’t let you submit a complete application online, and some have websites that provide scant details about the products they offer or what, exactly, they require of you to get a mortgage.
The mortgage business is more nuanced than it might seem. Lenders do use automated systems to process and approve mortgage applications. But many applications require an actual human to carefully review the details of a borrower’s finances. The details of your application affect what loan types you might qualify for, and factors like your income, existing debt and credit history will all determine your eligibility.
Those details are a key reason why you’ll often have to actually talk to multiple loan officers to learn what your options are.
How to Choose a Mortgage Lender
Finding the right mortgage at the right price is key, of course. But with such a major financial commitment, it’s worth looking for a lender that offers that and more: patience, respect and clear, honest answers.
You might have to make a lot of calls and submit a lot of applications—and you should, since the terms of your mortgage will play a major role in how financially stable you are after closing. But eventually, you’ll find the right lender and the right mortgage.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
