Signing on a knowledgeable mortgage lender is one of the first steps you’ll take on your journey to homeownership. A good lender could help you make a sound decision about a major commitment.
If you want to know what questions to ask a mortgage lender, these can help you feel more confident choosing a lender to navigate the complex homebuying process with you.
Key Points
• Lenders offer down payments as low as 3% for first-time homebuyers, but a 20% down payment avoids mortgage insurance.
• Interest rates and APRs differ; APR includes additional fees and is usually higher.
• Fixed-rate mortgages have stable payments, while adjustable-rate mortgages may start lower but can increase.
• Preapproval is more thorough than prequalification and helps show sellers you’re a qualified buyer.
• Closing costs typically range from 2% to 5% of the purchase price and include various fees.
1. How Much Can You Borrow?
How much you can borrow is the question most buyers have on their minds when they start dreaming about real estate listings online. You may have come across a mortgage calculator tool that estimates how much a mortgage is going to cost.
But that’s just a starting point. A mortgage lender will evaluate the entire spectrum of a homebuyer’s financial situation and find the true amount they’ll be able to borrow. The lender may also make recommendations for programs or loans for each buyer’s unique situation.
When you get a loan, you’ll receive a mortgage note, a legal contract between the lender and you that provides all the details about the loan, including the amount you were approved to borrow.
2. How Much of a Down Payment Do You Need?
Another key question your lender can help answer for you is how much are down payments? You’ve probably heard about the ideal 20% down, but a lender may be able to help homebuyers get into a home with a much lower down payment, such as 3% or 5%. The lowest down payment option is often available only to first-time homebuyers. But anyone who hasn’t owned a primary residence in the last three years is often considered a first-timer.
A 20% down payment will enable you to forgo mortgage insurance on a conventional loan (one not insured by the federal government), but lower down payment amounts can help homebuyers obtain housing sooner. There are plenty of options to explore with your lender.
3. What Is the Interest Rate and APR?
Your mortgage lender may explain the difference between the interest rate and annual percentage rate.
• Interest rate. The interest rate is the cost to borrow money each year. It does not include any fees or mortgage insurance premiums.
• APR. The APR is a more comprehensive reflection of what you’ll pay for the mortgage, which will include the interest rate, points paid, mortgage lender fees, and other fees needed to acquire the mortgage. It’s usually higher than the interest rate.
The interest rate and APR must be disclosed to you in a loan estimate with the other terms and conditions the lender is offering. Pay particular attention to how the APR changes from loan to loan. When you’re looking at APR vs. interest rates for an FHA loan and a conventional mortgage, for instance, you’ll notice the numbers come out very different. (This is just a recent example.)
| 30-year term | Interest rate | APR |
|---|---|---|
| FHA | 6.750% | 7.660% |
| Conventional | 6.875% | 7.031% |
In this case, the interest rate on a 30-year FHA loan is lower than on a conventional loan; however, when accounting an upfront mortgage premium for the FHA loan and other fees, the APR is higher on the FHA loan than on the conventional loan.
4. What Are the Differences Between Fixed- and Adjustable-Rate Mortgages?
The main difference between a fixed-rate mortgage and an adjustable-rate mortgage (ARM) is whether or not the monthly payment will change over the life of the loan.
• Fixed-rate mortgages start with a little higher monthly payment than an ARM, but the rate is secure for the term.
• An adjustable-rate mortgage will start with a lower interest rate that may increase as the index of interest rates increases. This type of loan may be more appropriate for buyers who know they will not be keeping the mortgage for long.
| Fixed-Rate Mortgages | ARMs |
|---|---|
| Interest rate is locked in for the term | Interest rate is variable |
| Monthly payment stays the same | Monthly payment is variable |
| Typically a longer-term mortgage, such as 15 or 30 years | Typically a shorter-term mortgage, such as five or seven years |
| Interest rate is determined when the rate is locked before closing the mortgage | When the index of interest rates goes up, the payment goes up |
The key to an ARM is to know how it adjusts. How frequently will your rate adjust? How much could your interest and monthly payments increase with each adjustment? Is there a cap on how high your interest rate could go? A good mortgage lender will help you consider all these variables when selecting a fixed-rate or adjustable-rate mortgage.
5. How Many Points Does the Rate Include?
What are points on a mortgage? Mortgage points are fees paid to a lender for a lower interest rate. Asking your lender how many points are included in the rate can help you compare loan products accurately.
6. When Can the Interest Rate Be Locked In?
Rate lock policies differ from lender to lender. Check at the top of the first page of your loan estimate to see if your rate is locked, and for how long.
You’ll want to ensure that any rate lock agreement gives you enough time to close on your loan. Many lenders have fees for extending a rate lock.
7. How Much Are Estimated Closing Costs?
One of the most important documents you’ll receive from your lender is called a loan estimate. The loan estimate gives a detailed breakdown of the interest rate, monthly payment, fees, and closing costs on the loan you’re applying for. When you ask about closing costs, your lender can provide this document to you.
Common closing costs include:
• Appraisal fee
• Loan origination fee
• Title insurance
• Prepaid expenses such as homeowners insurance, property taxes, and interest until your first payment is due
Expect to see 2% to 5% of the purchase price in closing costs.
8. Are There Any Other Fees?
Lenders are required to disclose all costs in the loan estimate. They’re also required to use the same standard form so you can compare costs and fees among different lenders accurately. Be sure to ask lenders about other fees and watch for them on your loan estimate.
9. When Will the Closing Happen?
The time to close on a house will depend on your individual circumstances, but the national average is 43 days.
An experienced lender with a digitized process may be able to close a loan more quickly. The time it takes a lender to approve and process the loan are also factors to consider.
10. What Could Delay the Closing?
In the August 2024 National Association of Realtors® Confidence Index survey, 14% of real estate transactions had a delayed settlement. Previous surveys have shown that the main reasons for a delay included appraisal issues, financing issues, home inspection or environmental issues, deed or title issues, or contingencies stated in the contract.
An experienced lender may know how to bring a home to the closing table despite the challenges with financing and appraisals. Be sure to ask upfront how these challenges would be addressed.
11. What Will Fees and Payments Be?
The neat part about obtaining a mortgage since 2015 is that the information is included in a standard form, the loan estimate. The form is used by all lenders and allows borrowers the opportunity to compare costs among lenders quickly and accurately. All fees and payments are required to be clearly outlined in this form.
Recommended: Guide to Mortgage Statements
12. How Good Does Your Credit Need to Be?
You’ll typically need a FICO® credit score of at least 620 to get a conventional mortgage, but lenders consider a credit score just one slice of the qualification pie.
With a lower credit score, a lender may steer you in the direction of an FHA loan, which requires a score of 580 or higher to qualify for a 3.5% down payment. Credit scores lower than 580 require a 10% down payment for an FHA loan.
Borrowers with credit scores above 740 may qualify for the best rates and terms a lender can offer.
13. Do You Need an Escrow Account?
Your lender can set up an escrow account to pay for expenses related to the property you’re purchasing. These may include homeowners insurance and taxes. An escrow account can take monthly deposits from the borrower, hold them, and then disburse them to the proper entities when yearly payments are due. In some locations and with certain lenders, escrow accounts are required.
14. Do You Offer Preapproval or Prequalification?
Lenders have different processes for qualifying mortgage applicants so it’s important to understand prequalification vs. preapproval. Preapproval is a much more in-depth analysis of a buyer’s finances than prequalification.
A preapproval letter provided by the lender specifies how much financing the lender is willing to extend to you, and helps to show sellers you’re a qualified buyer. Getting preapproved early in the homebuying process can also help you spot and remedy any potential problems in your credit report.
15. Is There a Prepayment Penalty?
A prepayment penalty is a fee for paying off all or part of your mortgage early. Avoiding prepayment penalties is easy if you choose a mortgage that doesn’t have any. Ask lenders if your desired loan carries a prepayment penalty. It will also be noted in the loan estimate.
16. When Is the First Payment Due?
A lender will be able to help you get your first payment in, which is typically on the first day of the month after a 30-day period after you close. For example, if you closed on Aug. 15, the first mortgage payment would be due on the 1st of the next month following a 30-day period (Oct. 1).
Each mortgage statement sent every billing cycle includes current information about the loan, including the payment breakdown, payment amount due, and principal balance.
17. Do You Need Mortgage Insurance?
Your mortgage lender will guide you through the process of acquiring private mortgage insurance, commonly called PMI, if you need it. Mortgage insurance is required for most conventional mortgages made with a down payment of less than 20%, as well as for FHA and USDA loans.
It’s not insurance for the buyer; instead, it protects the lender from risk. A good mortgage lender can also help advise borrowers on dropping PMI as soon as possible. A home loan help center can help you learn more about PMI or any mortgage question.
Recommended: What is PMI & How to Avoid It?
18. How Much Is the Lender Making Off of You?
Lenders are required to be clear and accurate when it comes to the costs of the loan. These should be fully disclosed on your loan estimate and closing documents. If you want to know how much the lender is charging for its services, you’ll find it under “origination fee.”
The Takeaway
If you’re shopping for a home loan or thinking about it, you might have mortgage questions — about down payments, APR, points, PMI, and more. Don’t worry about asking a lender too many, because many buyers need a guide throughout the homebuying journey. Asking questions is a great way to get to the lender and loan terms that make the most sense for your financial situation.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
FAQ
What should you not say to a mortgage lender?
The most important thing to remember when communicating with a prospective lender is that you should be truthful — about everything, but especially your finances.
What questions can a mortgage lender not ask?
Generally speaking, most of the topics that are off limits in a job interview are also off limits in a mortgage negotiation. A lender should not ask you about race, ethnicity, religion, or sexual orientation, for example. You also shouldn’t be asked your age (unless you are applying for an age-based loan), or about your family status (married vs. divorced, whether you are planning to have kids, etc.), or about your health.
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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
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