7 Questions to Ask a Mortgage Lender

Whether you’re a first-time homebuyer or you’re taking out a mortgage to upgrade or invest in another home, it’s important to prepare in advance. There are many decisions that go into finding a mortgage that works for you. And asking mortgage lenders the right questions can be a great place to start.

This article will provide seven questions you should ask a mortgage lender before you apply for a new home loan. The answers to these questions can help you prepare for the home-buying process and make sure you find the best loan available for your situation.

1. What types of mortgage loans do you offer?

Before you apply for a home loan, it’s important to understand that mortgages come in several varieties. You should make sure you understand the types of home loans a lender offers and how the various loan options work. It’s also wise to compare loan options from several lenders.

Fixed- vs. adjustable-rate mortgages

Some mortgages have different types of interest rates—fixed vs. adjustable. Fixed-rate mortgages feature interest rates that stay the same throughout the life of the loan. But with an adjustable mortgage, the interest rate could change and so could the payment amount.

Mortgage repayment terms can vary as well. If you choose a 30-year mortgage, it will take 30 years to pay off your home loan (assuming you repay the loan as promised and you don’t sell or refinance your property). Other common loan terms include 15 years, 20 years, and so on. If you opt for a shorter loan term, your monthly mortgage payment will be higher. But you might get a lower interest rate and you should pay less money in overall interest charges.^[1]

In addition to these differences, there are also multiple loan programs. It’s important to talk to your loan officer about which loan programs might be best suited to your situation.

Conventional loans

In the United States, a conventional loan is the most common type of mortgage that homebuyers use to purchase a home. Unlike some other home loan options, conventional loans have no backing from any government agency. As a result, there’s more risk involved for the lenders that issue these loans.^[2]

Because there’s more risk involved with conventional loans, it’s common to need a higher minimum credit score to qualify—often 620 or above. And unless you provide a down payment of at least 20%, you should be prepared to pay mortgage insurance on your loan.^{[3] [2]}

FHA loans

If you’re interested in buying a home with bad credit or less money down, an FHA loan backed by the Federal Housing Administration (FHA) might work for your situation. These government-backed loans are insured by the federal government, meaning the owners of the mortgage are protected against loss if you fail to repay your debt as promised.

If you have a FICO® Score of 580 or higher, you might qualify for an FHA loan with a down payment of 3.5% of the purchase price. With a 10% down payment, you might qualify for an FHA loan with a FICO Score as low as 500. However, you should expect higher interest rates and less attractive borrowing terms. And it’s also important to understand that not all lenders offer mortgages to borrowers with credit scores as low as 500.^[4]

VA loans

As an active-duty service member, veteran, National Guard member, Reserve member, or surviving spouse, you may be eligible for a VA loan. VA loans are government-backed loans that often feature lower interest rates and typically have no down payment requirements. Closing costs are also limited and there’s no private mortgage insurance (PMI) requirement. However, there is a VA funding fee unless you’re exempt.^[5]

The Department of Veterans Affairs (VA) doesn’t set a minimum qualifying credit score for VA loans. Instead, lenders set their own standards when it comes to approving or denying VA loan applications. So, while there’s technically no minimum credit score requirement for VA loans, you’ll still need to meet the minimum credit score standards of the lender you select.^[6]

USDA loans

You might want to consider a USDA loan if you’re interested in buying a property in a rural area. These loans are also government-backed, which may make them more affordable and easier to qualify for if you have credit challenges.

USDA loans have no minimum down payment requirement. And while many lenders prefer applicants to have a credit score of 620 or above, USDA loans don’t have a minimum credit score requirement.^[7]

2. What are the qualification requirements?

Each lender sets its own criteria you must meet before you can qualify for a mortgage. It’s helpful to ask your mortgage lender questions regarding any specific requirements you need to satisfy so you can prepare in advance.

Credit score

Certain loan programs require you to have a minimum credit score to qualify. And while it might be possible to buy a home with no credit or a bad credit score, it’s often more difficult.

For example, federal guidelines state you need at least a 580 FICO Score for an FHA loan (or a 500 FICO Score with a 10% down payment). Yet mortgage lenders may impose tougher guidelines, known as mortgage overlays, that decrease the odds of borrowers defaulting on their loans.

Many mortgage lenders require borrowers to have a credit score of 620 or higher for FHA loans. It’s common to need a credit score of 640 or higher for conventional loans as well.^[8]

Debt-to-income ratio

It’s also important to understand how a lender will consider your debts and income when you apply for a mortgage. If your debt-to-income (DTI) ratio is too high, you could have trouble affording an additional mortgage payment. This might cause a lender to deny your loan application due to the added risk.

In general, most lenders will work with a DTI ratio of 43% or less depending on the type of loan. But a DTI ratio of less than 36% is ideal.^[9]

However, if you ask a lender about its DTI standards ahead of time, you may be able to pay down certain debts to lower your monthly payment obligations. Reducing debts, especially credit card debt, may also have a positive impact on your credit score.

If you’re married, you might also consider the benefits of adding your spouse to your mortgage if they weren’t on the application with you in the first place. Doing so would allow you to add their income to the loan. And if they don’t owe much debt, it might decrease your collective DTI ratio.

Some borrowers also ask other family members, like parents, to co-sign for mortgages. This strategy might also reduce your DTI ratio in certain situations. However, if you’re considering co-signing for a family member’s mortgage (like a child), it’s important to research the risk involved first.

As a co-signer, you’re liable for the debt if the borrower doesn’t repay as promised. And if the borrower pays late or defaults on the mortgage, co-signing could damage your credit score. Even if your family member pays on time, you might have trouble borrowing yourself in the future due to the extra debt liability.

Assets

You should also ask a lender what type of reserves you may need to have available to qualify for a home loan. It’s common for mortgage lenders to require you to have a certain amount of assets to rely on in the event of a financial hardship, such as the following.

• Bank account balances (e.g., checking accounts, savings accounts, certificates of deposit, etc.).

• Retirement accounts (e.g., 401(k)s, IRAs, etc.).

• Mutual funds, stocks, and bonds.^[10]

Property details

The type of property and its location can also impact your mortgage eligibility. So, it’s important to share details about the property you’re interested in buying with your loan officer, and see what loan programs are available to help you.

If your goal is to buy a home in a rural area, for example, you may want to consider lenders that offer USDA loans. Keep in mind that many home loans are only available if you’re buying a primary residence—a home you plan to live in yourself. If you’re purchasing an investment property or vacation home, talk to your lender to find appropriate financing options.

3. How much will my loan cost?

Once a loan officer helps you narrow down the loan program that’s best for your situation, it’s time to talk about costs. Keep in mind that you should compare more than one mortgage loan offer to make sure you find the best deal before you fill out any official loan applications.

Interest rate

The interest rate a lender charges you has a significant impact on your monthly mortgage payment and your overall borrowing costs. As you compare offers from different lenders, keep in mind that even a seemingly small difference in interest rates can make a big difference over the life of your home loan.

Consider the following scenario. On a $385,000 home, you would pay $2,420 per month if you took out a 30-year fixed mortgage with a 6.573% interest rate. In today’s market, you would probably need a very good to excellent credit score to qualify for a mortgage with a similar interest rate according to the myFICO Loan Savings Calculator—an online tool that helps you discover how FICO Scores can impact the interest you pay on a loan. Over the course of 30 years, you would pay $491,247 in interest if you paid the loan as agreed and never refinanced.

However, if you took out a 30-year fixed home loan for the same amount ($385,000) but had merely good credit scores, you’d likely pay a higher interest rate—7.186% in this hypothetical example. In this scenario, your payment would be an extra $156 per month for a total of $2,576. Your total interest costs would be an extra $56,776 adding up to a total of $554,487 in interest charges (again assuming you pay the loan as agreed and don’t refinance).^[11]

Fees and closing costs
In addition to the interest rate a lender charges you, you may also have to pay various fees when you take out a new mortgage. Fees and closing costs could add up to a sizable sum—often ranging between 2% to 5% of the sale price of your home. So, it’s important to ask what a lender plans to charge you, which costs you have to pay upfront, and if any of those expenses are negotiable.^[12]

Below are a few common fees you might encounter during the homebuying process.

• Origination fee: An origination fee is a charge from the lender to cover costs associated with the handling and processing of your home loan. In general, mortgage origination fees range between 0.5% and 1% of your loan amount.^[13]
• Taxes and government fees: Your local government may charge non-negotiable fees for certain types of real estate transactions.
• Appraisal fee: A lender will request an appraisal of your property’s value to make sure it’s worth the amount you’re asking to borrow. According to the 2023 Appraisal Survey by the National Association of Realtors®, the typical cost of an appraisal is $500.^[14]
• Home inspection fee: Home inspections protect buyers—making sure you don’t purchase a property with unforeseen issues or safety concerns. On average, the cost of a home inspection may range from $280 to $400.^[15]
• Credit report fee: A mortgage lender will typically check your credit reports from the three major credit bureaus—Equifax, TransUnion, and Experian—multiple times during the mortgage process. It’s also common for a lender to charge you a credit report fee— often around $35—to help recuperate some of the costs associated with accessing your credit information. You can access your own credit reports free of charge. In fact, it’s wise to review your own credit reports before you apply for a mortgage and throughout the loan process. Checking your own credit report is a soft credit inquiry that will never hurt your credit score.

Monthly payment

Another cost you should review with your loan officer is the estimated amount of your monthly mortgage payment. Keep in mind that your maximum monthly payment (based on your maximum loan amount) may be higher than you’re comfortable paying. If so, you may want to consider purchasing a less expensive home. Or you could also consider building your credit for a time to see if it’s possible to qualify for a more attractive interest rate down the road.

Down payment

Be sure to ask a mortgage lender how much money you will need to provide as a down payment for your chosen mortgage loan. For many home loan programs, down payments requirements range between 3% to 20% of the loan amount.

Your lender may have rules regarding the sources you can use as funding for a down payment as well. Personal savings or funding from the sale of a previous home are typically fine. But if a family member or friend is contributing money to help you with your down payment, there may be limits.^[16]

Certain loans may have down payment assistance options as well. You can ask your lender if any such programs are available for your situation.

4. What is your preapproval or prequalification process?

Once you narrow down your choices and find a mortgage lender you’re comfortable working with, you may be ready to see if you can get preapproved or prequalified for a home loan. Below is a general idea of how some lenders may define these important steps in the mortgage process.

• Prequalification: This early step during the mortgage process happens when a lender asks questions about your finances, employment history, and other personal information. The lender will check your credit and give you an estimate of how much you can borrow based on answers you provide. However, the lender doesn’t verify your details with documentation. So, the estimate is subject to change if you report incorrect information.
• Preapproval: During the preapproval process, the lender verifies the information you provide on your mortgage application. You must typically provide documentation like bank statements, tax returns, W-2 forms, and any other proof the lender requests to verify information on your loan application. If the lender preapproves your application, you’ll receive a preapproval letter that’s typically valid for 90 days. A preapproval letter lets real estate agents and sellers know you’re serious if you find a home you’re interested in making an offer to purchase.^[17]

It’s worth noting that some lenders may use the terms prequalified and preapproved differently than how they are described above. Therefore, you should ask the lender you’re working with to explain its process to you and make sure you understand how it works.^[18]

5. Do you offer a rate lock?

Mortgage interest rates, like most other types of interest rates, are subject to change. Sometimes mortgage interest rates can fluctuate daily or even hourly.

Unfortunately, the home-buying process tends to take time. Shopping around for the perfect property and waiting for a seller to accept your offer (especially if you’re trying to buy in an area where there’s not a lot of available inventory for buyers) can sometimes stretch out for weeks or months. And even after a seller accepts your offer, closing on a house can often take between 30 and 45 days.^[19]

As a result, some lenders offer an agreement called a mortgage rate lock. With a rate lock, the lender promises not to change the interest rate on your loan estimate for a set number of days. In general, rate locks last for 30, 45, or 60 days. But other terms may be available as well.^[20]

If you’re interested in a rate lock, you should ask your lender if it offers one. You should also ask if there’s an additional charge for a rate lock.

Keep in mind that a rate lock could prevent you from getting a lower interest rate on your mortgage if one becomes available. Additionally, even if your interest rate is locked, there are still reasons your interest rate may change. If your credit score changes, for example, your lender may still be able to adjust the interest rate it’s offering on your mortgage prior to your closing date.

6. What happens after a seller accepts my purchase offer?

Before you make an offer to purchase, it’s wise to ask your lender questions about what happens after a seller accepts your offer to purchase a home. The next step in the mortgage process is underwriting—the true review of your official loan application—and it can be slightly different for each lender.

During underwriting, a lender will verify details like your employment status, income, and assets. Although the lender likely checked your credit when you were preapproved or prequalified for a mortgage loan, it might want to pull an updated copy of your credit reports and scores during underwriting as well. So, it’s important to avoid credit changes during the loan process like new loans, higher credit card balances, or late payments that might damage your credit score or increase your DTI ratio.

The appraisal

During the underwriting phase, the lender will also order an appraisal of the property. It’s important for the lender to confirm that the home you’re buying is safe and worth the amount you’re asking to borrow. If the appraisal comes in too low, you have a few options.

• Make up the difference in cash.
• Attempt to renegotiate a lower purchase price.
• Walk away and search for another home to purchase.

7. Can you describe the loan closing process?

The final step in the mortgage process is closing. And since not every lender handles closing the same way, you may want to ask your loan offer what to expect at the closing table before you arrive.

Many mortgage closings take place at a real estate attorney’s office. In general, you should expect to bring photo identification plus any funds you need to cover the down payment and closing costs. Your lender will provide you with a Closing Disclosure in advance that breaks down the amounts you need to bring in closing costs.

You should also be prepared to sign your mortgage paperwork. Among other forms, these documents should include a copy of your promissory note (a commitment to repay your loan), title, and deed for your new property.^[21]

Bottom line

Buying a home is a major commitment, and securing the right financing is essential. The seven questions above can be a good place to start when you’re trying to narrow down your choices and find a mortgage lender to help you with the home-buying process. After all, the mortgage loan you select is an important financial decision that could impact you for decades to come.

Sources

1. Consumerfinance.gov. “Understand loan options.” https://www.consumerfinance.gov/owning-a-home/loan-options/#anchor_loan-term_361c08846349fe
2. Consumerfinance.gov. “Conventional loans.” https://www.consumerfinance.gov/owning-a-home/loan-options/conventional-loans/
3. Capitalone.com. “What credit score is needed to buy a house?” https://www.capitalone.com/learn-grow/money-management/credit-score-needed-to-buy-a-house/
4. Rocketmortgage.com. “FHA Loans: Requirements, Loan Limits And Rates.” https://www.rocketmortgage.com/learn/fha-loans
5. VA.gov. “Eligibility requirements for VA home loan programs.” https://www.va.gov/housing-assistance/home-loans/eligibility/
6. Rocketmortgage.com. “What Is the Minimum VA Loan Credit Score for a Home Purchase or Refinance?” https://www.rocketmortgage.com/learn/va-loan-credit-score
7. Rd.USDA.gov. “Credit Analysis: Single Family Housing Guaranteed Loan Program.” https://www.rd.usda.gov/sites/default/files/SingleFamilyHousingGuaranteedLoanTraining06_30_22.pdf
8. Experian.com. “What Are Mortgage Overlays?” https://www.experian.com/blogs/ask-experian/what-are-mortgage-overlays/
9. Rocketmortgage.com. “Debt-To-Income Ratio (DTI): What Is It And How Is it Calculated?” https://www.rocketmortgage.com/learn/debt-to-income-ratio
10. Rocketmortgage.com. “Qualifying For A Mortgage: The Basics.” https://www.rocketmortgage.com/learn/mortgage-qualification
11. myFICO.com. “Loan Savings Calculator.” https://www.myfico.com/credit-education/calculators/loan-savings-calculator/
12. Experian.com. “Everything You Need to Know About Mortgage Fees.” https://www.experian.com/blogs/ask-experian/everything-you-need-to-know-about-mortgage-fees/
13. Rocketmortgage. “Mortgage Origination Fee: The Inside Scoop.” https://www.rocketmortgage.com/learn/mortgage-origination-fee
14. Cdn.nar.realtor.com. “2023 Appraisal Survey.” https://cdn.nar.realtor//sites/default/files/documents/2023-appraisal-survey-09-05-2023.pdf
15. Quickenloans.com. “Home Inspection Cost: A Complete Breakdown.” https://www.quickenloans.com/learn/home-inspection-cost
16. Experian.com. “What Can I Use for a Down Payment on a Home?” https://www.experian.com/blogs/ask-experian/what-can-i-use-for-down-payment-on-home/
17. Bankofamerica.com. “Two smart homebuying moves: mortgage prequalification and preapproval.” https://www.bankofamerica.com/mortgage/learn/mortgage-prequalification/
18. Consumerfinance.gov. “What’s the difference between a prequalification letter and a preapproval letter?” https://www.consumerfinance.gov/ask-cfpb/whats-the-difference-between-a-prequalification-letter-and-a-preapproval-letter-en-127/
19. Rocketmortgage.com. “How Long Does It Take to Close On a House?” https://www.rocketmortgage.com/learn/time-to-close-on-a-house#:~:text=How%20Long%20Does%20Closing%20On,home%20purchase%20was%2050%20days
20. Consumerfinance.gov. “What’s a lock-in or a rate lock on a mortgage?” https://www.consumerfinance.gov/ask-cfpb/whats-a-lock-in-or-a-rate-lock-en-143/#:~:text=A%20lock%2Din%20or%20rate,can%20change%20daily%2C%20sometimes%20hourly
21. Quickenloans.com. “Closing Documents: What Buyers and Sellers need to Sign.” https://www.quickenloans.com/learn/closing-documents

About the author

Michelle Lambright Black is a nationally recognized credit expert with two decades of experience. She is the founder of CreditWriter.com, an online credit education resource and community that helps busy moms learn how to build good credit and a strong financial plan that they can leverage to their advantage. Michelle's work has been published thousands of times by FICO, Experian, Forbes, Bankrate, MarketWatch, Parents, U.S. News & World Report, and many other outlets. You can connect with Michelle on Twitter (@MichelleLBlack) and Instagram (@CreditWriter).

Editorial policy

Our goal at Self is to provide readers with current and unbiased information on credit, financial health, and related topics. This content is based on research and other related articles from trusted sources. All content at Self is written by experienced contributors in the finance industry and reviewed by an accredited person(s).