7 Questions to Ask Mortgage Lenders for a Smooth Pre-Approval Process

Buying a home is one of the most significant financial decisions you’ll make and finding the right mortgage loan is crucial. To ensure you’re making the best choice for you, it’s important to ask your mortgage lender the right questions and be well-prepared. Here’s everything you need to know about meeting with a mortgage lender and the information you need to make the pre-approval process easier:

When should I reach out to a lender?

Short answer: As soon as you decide you want to buy a house. We recommend starting the conversation early and planning ahead. That way, you can understand the approval process and have time to compare different loan options to ensure you’re committing to the right one. It’s a long-term commitment, so it’s important to make an informed decision.

If you’re ready to start the pre-approval process, reach out to one of our mortgage loan officers today!

How should you prepare for meeting with a mortgage lender?

It’s important to be well-prepared for your meeting with a lender. Here are some steps to take: 

• Educate Yourself: Consider taking a free homebuyer education course, such as Fannie Mae’s HomeView or Freddie Mac’s Credit Smart online program. These courses are often required for first-time homebuyers and can provide valuable insights.
• Set Up an Appointment: Schedule a meeting with a loan officer to discuss your options.
• Gather Necessary Documents:
  o 30 Days of Pay Stubs: To verify your income
  o W2s: To confirm your annual earnings
  o Assets: Information about your savings, investments and other financial resources

What mortgage terms should I know?

Here are some important terms to familiarize yourself with before you meet with a lender:

1. Annual Percentage Rate (APR): True annual cost of borrowing money, including interest and fees
2. Closing Costs: Costs for the loan like appraisal fees, credit report, underwriting fees, etc.
3. Down Payment: Initial payment toward home purchase
4. Escrow: An account managed by the lender to collect and pay property taxes and insurance payments on a home
5. Homeowners insurance: Protects your property against various losses and damages to a residence
6. Interest: The cost of borrowing money
7. Mortgage: A loan for buying real estate
8. Private Mortgage Insurance (PMI): Insurance for lenders if the down payment is less than 20%
9. Pre-Approval: A lender's commitment to a loan amount
10. Principal: Original loan amount borrowed to purchase a property
11. Property taxes: Taxes on home value collected by the local government to fund local services

The 7 Questions You Should Ask Your Mortgage Lender

1. What are my mortgage options? 

Understanding the different types of loans available can help you choose the one that best fits your financial situation. Each loan type comes with its own set of terms, rates and requirements and knowing your options can help you make a more informed decision.

For example, you might be considering a fixed-rate mortgage, which offers a consistent interest rate over the life of the loan or an adjustable-rate mortgage (ARM) where the interest rate can change over time. 

2. Is there a minimum down payment required?

One of the most critical pieces of information to gather during the pre-approval process is the minimum down payment required for the mortgage you're considering. This number can significantly influence your budget and savings plan. Knowing the minimum down payment helps you set realistic financial goals and ensures that you have enough funds set aside to meet this requirement. Most first-time homebuyer programs allow for 0% down, but you should plan a minimum of 3%.

3. Do I qualify for any first-time homebuyer or down payment assistance programs?

Many first-time homebuyers are eligible for special programs designed to make homeownership more accessible and affordable. These programs can offer a range of benefits, such as reduced down payment requirements, lower interest rates or even grants to cover some of the costs. It's important to ask your lender about these programs to see if you qualify.

4. What are my interest and Annual Percentage Rates (APR)?

The interest rate and the Annual Percentage Rate (APR) are two key factors that will significantly impact your monthly mortgage payments and the total cost of the loan over its lifetime. The interest rate is the cost of borrowing the principal amount, while the APR includes the interest rate plus other fees and charges, giving you the full picture of the loan's cost. Understanding these rates is crucial for assessing the affordability of the loan.

5. Will I have to pay Private Mortgage Insurance (PMI)?

Does it vary per loan? Private Mortgage Insurance (PMI) is typically required if you put down less than 20% of the home's value as a down payment. This insurance protects the lender in case you default on the loan, and the cost can vary depending on the type of loan you choose. It's important to understand how PMI will affect your overall expenses, as it can add a significant amount to your monthly payment. Ask your lender about the different PMI loan options as they can vary from one loan to another.

6. What is included in my monthly mortgage payment?

Your monthly mortgage payment is more than just the principal and interest on the loan. It typically includes several components like your principal, interest, property taxes and homeowners insurance. Some loans may also include additional fees, such as mortgage insurance.

7. What are my estimated closing costs?Are there any other pre-paid expenses I’ll need? 

Closing costs are the fees and expenses you must pay to finalize your mortgage and complete the home purchase. These costs can add up quickly and include items such as loan origination fees, appraisal fees, title insurance and attorney fees. Additionally, you might need to pay for pre-paid expenses, such as property taxes or homeowners insurance, which are typically escrowed and paid upfront. Being aware of these costs can help you avoid surprises and ensure that you have the necessary funds available for the final stages of the homebuying process.

To get started on your homebuying journey, connect with one of our mortgage loan officers today.

ABOUT THE AUTHOR

Sara Whitley

AVP, Senior Community Mortgage Loan Officer | Johnson Financial Group

As Assistant Vice President, Senior Community Mortgage Loan Officer, Sara educates and supports her clients throughout the homeownership journey to ensure a seamless experience. She specializes in assisting first-time homebuyers and has vast knowledge of down payment assistance programs and various loan products. As an active member of her community, Sara builds relationships with local nonprofits and agencies to make sure local community members have the education they need to evaluate the options available to them. Sara prioritizes building trust with her clients and works to make sure they understand the ins and outs of homeownership and the mortgage loan process.