5 Essential Questions To Ask A Mortgage Lender
October 20, 2021
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!