Choosing a mortgage is an important step in your house buying journey. If you don’t have an idea of what to ask the mortgage lender or don’t know what to expect, it can lead to terrible mistakes like higher interest rates and poorly planned monthly payments. To make sure this does not happen, we’ve put together a list of 5 essential questions to ask a mortgage lender before you sign a loan contract.
Questions To Ask While Choosing A Mortgage Lender
1. What mortgage options do you offer?
There are different types of loans available in the market. The most common types being:
- Conventional fixed-rate mortgages– These types of loans are offered for long periods, generally 30 years. The interest rate in these loans remains the same throughout the period of the loan. Since the loan is spread over a longer duration, monthly payments are lower. However, the longer term also means that you will be paying more interest on the loan.
- Adjustable-rate mortgages –The interest rate in these loans vary and change according to the market fluctuations. This means that your monthly payments can also vary from month to month. Although it might make budgeting a challenge, there’s a capping set to limit the extent to which the interest rate as well as the monthly payment amount, can be increased.
- FHA loans –For people who have low income and low credit scores, FHA loans are a great option. These loans are offered by the Federal Housing Association and have a low criteria to allow more people to be eligible for the loan. These loans come with mortgage insurance, which means that the lender is insured in case the borrower stops making their monthly payments.
Make sure you ask the loan provider about the different options they can offer you. Based on your income, your credit score, and other financial conditions, the mortgage lender will be able to provide you with the best option for you.
2. What will my monthly payments and fees be?
It’s important to understand monthly payments because that’s how you plan your budget. Therefore, the second important question you need to ask the mortgage lender is about the monthly payments you will be making after taking the loan.
The lender will review your financial conditions, credit records, and assets to provide you with a realistic assessment of the likely loan amount. They will also tell you about the costs involved, any additional fees factored into your loan payments, and the down payment you need to make on your house.
3. What’s the credit qualification to get a mortgage?
Different mortgage lenders in the market have different standards that they consider acceptable for their loans. Generally, the higher your credit score, the easier it is for you to get a loan at a low-interest rate. You can get a loan even with a bad credit score, but you might have to pay a little more for the loan. You need to ask the mortgage lender about their credit qualification. You can also ask the lender for any special offers or lower interest rates if you know you have a good credit score.
4. Do you offer preapproval or prequalification?
Prequalification and preapproval are two completely different terms that get mistaken as the same thing. Prequalification is when your ability to get a loan is assessed through a set of questions. The lender does not verify any information in a prequalification. Whereas in a preapproval, the lender will have to verify your financial information and then provide you with an accurate assessment of the loan amount and your eligibility.
Ask the mortgage lender you choose about the differences between the two. They will provide you with an answer and a recommendation based on how serious you are about buying a house.
5. Do you charge a prepayment penalty?
A mortgage lender will potentially lose thousands of dollars if you repay the loan earlier than the fixed loan term. It’s common for people to pay off the mortgage early when they get access to more funds than expected during the course of their loan.
To deter the lenders from repaying early, mortgages generally put on a prepayment penalty. This allows them to mitigate some of the losses that they might face due to prepayment.
Ask the lender about prepayment options and if they charge a penalty for repaying early. Different lenders may have different prepayment penalties, which may cause the option of early pay-off unprofitable to you.
Look before you leap
Asking the right questions to your mortgage lender can prevent you from making terrible mistakes while getting a mortgage. We’ve shared some basic questions here that can help you in your home buying journey, but you are not limited to these questions. Ask about anything you are unsure about to get rid of any doubts or fears in your mind.
All the best!
FAQs
General questions:
Which mortgage products would you recommend for my situation? Are your rates, terms, fees, and closing costs negotiable? Do you offer discounts for inspections, home ownership classes, or automatic payment set-up? Will I have to buy private mortgage insurance?
What are the four C's of mortgage lending? ›
Meet the Fantastic Four - the 4 C's: Capacity, Credit, Collateral, and Capital. These titans hold the power to make or break your dream of homeownership. They're the guardians of mortgage approval, keeping a watchful eye on every aspect of your financial life.
What are the 5 items for mortgage application? ›
What do I have to do to apply for a mortgage loan?
- Your name.
- Your income.
- Your Social Security number (so the lender can check your credit)
- The address of the home you plan to purchase or refinance.
- An estimate of the home's value.
- The loan amount you want to borrow.
How do I prepare before meeting with a mortgage lender?
- Strengthen your credit.
- Determine your budget.
- Understand your mortgage options.
- Compare rates.
- Get preapproved.
- Read the fine print.
The five C's, or characteristics, of credit — character, capacity, capital, conditions and collateral — are a framework used by many lenders to evaluate potential small-business borrowers.
What not to tell a lender? ›
5 Things You Should Never Say When Getting a Mortgage
- 'I need to get an extra insurance quote due to … ...
- 'I can't believe how much work the house needs before we move in' ...
- 'Please don't tell my spouse what's on my credit report' ...
- 'I'm still working out the details on my down payment'
The system weighs five characteristics of the borrower and conditions of the loan, attempting to estimate the chance of default and, consequently, the risk of a financial loss for the lender. The five Cs of credit are character, capacity, capital, collateral, and conditions.
What are the 4 elements of a mortgage? ›
Your monthly mortgage payment typically has four parts: loan principal, loan interest, taxes, and insurance. If you've never owned a home before, you may be surprised that a mortgage payment has that many components. By including these costs in one monthly payment, your lender helps make things easier for you.
What is the 5c principle of lending? ›
The 5 C's of credit are character, capacity, capital, collateral and conditions. When you apply for a loan, mortgage or credit card, the lender will want to know you can pay back the money as agreed. Lenders will look at your creditworthiness, or how you've managed debt and whether you can take on more.
What is the 1003 form in a mortgage? ›
The 1003 loan application, or Uniform Residential Loan Application, is the standardized form most mortgage lenders in the U.S. use. The application asks questions about the borrower's employment, income, assets, and debts, as well as requiring information about the property.
Your lender will assess your credit score and history, along with your income, assets, and debt-to-income ratio (DTI). This will allow you to see how much you can comfortably afford before you start house hunting.
What questions are mortgage lenders not allowed to ask? ›
Lenders ask questions to assess your risk level as a potential borrower. Lenders aren't allowed to ask questions regarding sexual orientation, medical history, disabilities, political or religious beliefs and plans for family expansion.
What questions should you ask a mortgage advisor? ›
The 10 best questions to ask your mortgage broker
- Are you regulated? ...
- How much do you charge? ...
- What's the best type of mortgage for me? ...
- How many lenders can you access? ...
- How do I need to save to buy my home? ...
- How much can I borrow? ...
- What is the interest rate, and will this change? ...
- Are there any restrictions on my mortgage?
Say something along the lines of: “Right now, I am looking at houses in the $250,000 range, but I want to make sure that I qualify to borrow that much money first.” Listen carefully to what they say. Ask questions about anything you are uncertain about or don't know.
What question is a lender not allowed to ask? ›
Lenders ask questions to assess your risk level as a potential borrower. Lenders aren't allowed to ask questions regarding sexual orientation, medical history, disabilities, political or religious beliefs and plans for family expansion.
What should you do before deciding on a lender? ›
5 Tips for Choosing a Mortgage Lender
- Identify your preferred loan terms. Before you can choose the right mortgage lender, you need to know what you want in a loan. ...
- Ask for referrals from friends and family. ...
- Talk to multiple lenders. ...
- Compare both rates and fees. ...
- Go through the preapproval process.
Share the basic facts about your situation and the kind(s) of loan you are considering. Ask the loan officer whether your plan makes sense to them, or whether they might recommend something a little different. If they recommend something different, ask why.
What does a lender want to know? ›
While not as critical as your credit or income, lenders will usually want to see your bank statements. On your application, you can also list assets such as cash (things like checking accounts, savings accounts and CDs) and investments (retirement accounts, stocks, bonds or anything else).
