*As of April 20, 2020, Quicken Loans® isn’t offering conventional adjustable rate mortgages (ARMs).
*As of July 6, 2020, Quicken Loans is no longer accepting USDA loan applications.
Doing your research and asking questions is important when looking for a mortgage lender. Not all lenders are the same, and it’s important to understand as much as possible before you move forward in the home loan process.
Whether you’re purchasing a home or refinancing, having a list of mortgage questions to ask before making a decision should be your first step. Here are the top 20 most important questions to understand and questions to ask your mortgage lender specifically.
Typical Mortgage Questions
There are steps you can take to be better informed about your options and the general mortgage process before meeting with a lender.
Here are some common mortgage questions you can dig into on your own to help gain a better understanding prior to meeting with a lender.
How Does A Mortgage Work?
A mortgage is a loan for your house. You would use a mortgage to purchase a home.
You can also refinance the home in order to gain more favorable terms for your situation, or convert existing home value into cash.
When you get a mortgage, there are two pieces of documentation to sign. The first is a promissory note which goes over the repayment process and specifies your monthly payment and the length of the term. It’s your promise to pay back the loan.
You also sign the mortgage itself which contains these financial details, but also includes the recourse a lender has if you don’t make your payment, laying out specific procedures and penalties. Typically, a lender will have the ability to take the house back if you default on your payments. Once your home is paid off, the lien on your house that allows them to do this is removed.
What Types Of Loans Are There?
Mortgage loans also come in many different flavors. One of the biggest points to know is whether the rate is fixed or adjustable so that it will change over time.
Loans also come in a variety of term lengths. The longer the term, the cheaper your monthly payment. The trade-off? You’ll pay more interest than you would on a shorter-term loan.
Another consideration is the investor in your mortgage loan. Conventional loans require a slightly higher credit score than FHA loans, but with a high enough down payment, you can avoid mortgage insurance altogether. Meanwhile, FHA loans will allow you to qualify with a slightly lower credit score than many other options.
Two special programs are USDA and VA loans. Both feature the option to get a home loan with no down payment.
USDA loans are targeted to encourage development in rural areas or on the outskirts of suburbia.
VA loans are a benefit for qualifying active-duty servicemembers, reservists, veterans and surviving spouses of those who have been killed in action or passed as a result of a service-connected disability. For those that qualify, the VA loan also offers some of the best interest rates available under any loan option.
How Do I Qualify For One?
When it comes to qualifying you for a loan, mortgage lenders will look at several factors, including income, property, assets and credit (IPAC).
Your credit report is pulled to get a look at your credit score as well as your existing debts. Lenders look at the lowest median credit score of all borrowers on the loan for the purposes of qualification.
- For FHA, that score is 580 if you’re trying to purchase, lower your rate or change your term.
- The qualification baseline for most conventional loans is 620.
- Lenders set their own policies for the VA; at Quicken Loans you have to have at least a 620 score.
- USDA loans from Quicken Loans require a 640 score.
Beyond credit, income is also very important because it’s compared to your existing debts to get something called your debt-to-income ratio (DTI). In order to qualify for the most loan options, you should keep your DTI at no more than 45%, house payment included.
Finally, the lender will look at your property and assets.
In the property piece, an appraiser has to make sure the home is move-in ready, safe to live in, as well as assign a value to the property.
The lender will also look at your assets to make sure you have money for a down payment.
Depending on the investor in your mortgage and the loan purpose (e.g. is this for a primary, vacation or rental property), you may be required to have reserves – savings for a certain number of months of mortgage payments, should you experience a loss of income.
What’s The Difference Between Being Prequalified And Preapproved?
Lenders often use the terms prequalified and preapproved interchangeably, but technically, they often mean very different things, so you’ll want to be careful.
In a typical prequalification, a lender may or may not pull your credit to get an idea of what loans you qualify for. If they do go through with a credit pull, they’ll see both your median FICO® score and the existing debts reporting on your credit.
If they don’t actually proceed with pulling credit, it’s very important to be as honest as possible with the lender about your credit score and any current monthly installment and revolving debt payments. The lender will also ask for verbal or written estimates of both your assets and income. From there, they are able to give you an idea of how much you can afford, but it’s really just a best guess.
In a proper preapproval, a lender will pull your credit. They’ll also ask you for documentation like bank statements, pay stubs and W-2s so they know exactly what the top end of your budget would be based on an assumed interest rate. Sellers and their real estate agents are much more comfortable with this stronger form of approval.
How Much House Can I Afford?
While being prequalified or getting a verified mortgage approval will help you define the top end of their budget, it doesn’t mean that you should immediately go looking at houses in the upper end of your price range.
You don’t want to end up spending so much on your house payment each month that you’re unable to save for any emergencies that might come up. You also want to leave room in your budget for whatever sparks joy in your life. You should still be able to take the occasional trip and go to dinner with friends once a week, if that’s your thing.
You can use your mortgage approval as a starting point for sure, but don’t stop there. Before you hit the pavement to look at homes, you’ll want to take a hard look at your budget as well to determine a house payment you would feel comfortable with.
Keep in mind there’s more to your house payment than the mortgage itself (we’ll break down the pieces of a house payment later on), and you also want to save between 1% – 2% of the purchase price for maintenance costs.
If you’re looking for a guideline, it’s generally a good idea to spend no more than 33% of your monthly budget on housing costs. Any more than that, and you might be overextending yourself.
How Much Should I Save For A Down Payment?
There are two different pieces to this. There’s what you’re required to save and then the best down payment for you given your situation.
- If you qualify for a USDA or VA loan, no down payment is required.
- If you’re getting an FHA loan, the minimum down payment is 3.5%.
- If you qualify for a conventional loan through either Fannie Mae or Freddie Mac, down payments start at 3% and in no event would you have to put down more than 5% of the purchase price on a primary residence.
However, there are plenty of reasons to make a higher down payment if you can afford it.
On a conventional loan, if you put 20% down, you can avoid having to pay for private mortgage insurance (PMI). Otherwise, you can ask that it be canceled once you reach 20% equity.
On an FHA loan, you’ll pay mortgage insurance premiums (MIP) for the life of the loan if you make a down payment of less than 10%. Otherwise, it comes off after 11 years.
Your interest rate is determined in part by a combination of your median FICO® score and the size of your down payment, so holding all other factors equal, a higher down payment should mean a lower rate.
Given this, the real answer to this question is that you should put down as much as you can comfortably afford without compromising other financial goals.
Just keep in mind you’ll probably have to furnish the house, as well.
What Might My Monthly Mortgage Payment Include?
What’s included in your monthly mortgage payment will differ depending on whether you have an escrow account for your taxes and insurance. Most lenders require this, particularly if you make a down payment of less than 20%.
At a minimum, every mortgage payment will include principal – the amount that goes toward paying off the balance of the loan – and interest.
Assuming you have an escrow account, your mortgage payment will also include your property taxes and homeowners insurance, each divided over a 12-month period. If you have mortgage insurance, it’s handled the same way.
Although it may or may not be included in your escrow account, if you’ll be living in a homeowners association your monthly or annual dues are included in your qualification as if they were part of your mortgage payment.
Collectively, you can remember the parts of your mortgage payment with the acronym PITIA: Principal, Interest, Taxes, Home Insurance and Home Association fees.
Who Participates In Down Payment Assistance Programs Near Me?
If you’re considering using down payment assistance, it’ll be important to find out if the lender accepts the assistance that you qualify for as a form of down payment.
Are you looking for a starting point in finding assistance? HUD maintains a list of state and local home buying programs you may find useful.
Mortgage Questions To Ask Your Lender
You’ve set your first appointment up with your lender, but you aren’t sure where to start.
You can ask any of the general mortgage questions included above, but there are also more specific questions to keep in mind. Knowing the right questions to ask will help you choose the right lender.
What Types Of Home Loans Do You Offer?
Now that you know the types of loans available to you, it’s time to find a lender that can match you with the right option for you. This starts with asking your lender what kind of loans they offer.
Everyone offers fixed-rate mortgages and ARMs, but what are the lengths of the fixed-rate periods on the ARMs. This is important to know because you could potentially save some money before the interest rate ever adjusts if you know you’ll move out within a few years. You can also get a conventional fixed loan anywhere between 8 – 30 years in length, but does the lender offer all of these terms?
If you’re looking for an FHA, USDA or VA loan, are all options offered?
Does the lender have special financing options for condos?
The more options a lender offers, the more likely you are to find one that best matches your unique needs as an individual.
Which Type Of Mortgage Is Best For Me?
As you have the conversation with a lender, make sure to give plenty of detail on your situation and answer any questions they have.
If they recommend a specific loan option for you, have them put that option or several options in writing so you can understand the differences and be educated about the strengths and weaknesses of each scenario. This would be a good time to ask about alternatives.
Never be afraid to ask why. If a fee or cost looks odd to you, make them explain it. If you feel comfortable that they seem to know what they’re talking about and have your best interest in mind, move forward. Otherwise, feel free to go elsewhere.
What Will My Interest And Annual Percentage Rate Be?
When lenders advertise interest rates, there are two rates you’ll see.
The first is the base interest rate you’re getting charged for the mortgage.
The second interest rate is the annual percentage rate (APR). The APR is higher because it factors in the base interest rate plus the closing costs associated with the loan.
One important point to remember is that the bigger the difference is between the base interest rate and the APR, the more the lenders are charging in fees.
Your lender should also be able to explain the factors that go into deciding what your interest rate is.
What Is The Loan Estimate?
A loan estimate is a complete breakdown of the costs associated with your loan as well as in any closing costs.
Lenders are legally required to give you this estimate within three business days of your completed application.
If there’s a change to your loan that will materially affect the mortgage costs, they have to send you a new loan estimate.
You’ll also get a closing disclosure three business days prior to closing on your mortgage.
Although your actual mortgage costs can only vary minimally from what was shown on your initial lending estimate, third-party fees charged for things like title insurance, survey and appraisal are allowed to change by as much as 10%.
Your loan estimate will include the basic terms of the mortgage as well as all costs associated with the loan.
Don’t be afraid to ask questions to your lender if there’s anything you don’t understand. Here’s a detailed breakdown of the loan estimate.
Do You Handle Underwriting In-House?
Underwriting is the process of verifying all the information you provided and making sure you qualify for the loan.
It’s important that you know whether the lender will be handling the underwriting and what to expect during the process.
Ask the lender about the best method of communication, and how best to get them important follow-up information. Once you get the information to them, how soon should you expect updates?
What Is Your Average Loan Processing Time?
Ask the lender what their average loan processing time is.
At Quicken Loans, we work to close purchase loans in 30 days or less.
Refinances close a little quicker because an appraisal may not be always required, and there’s no home inspection.
Processing time can be particularly important in a purchase situation because sellers will be looking for someone who can get their financing squared away fast in order to move on with the next stage of their life.
What Will I Get Charged For From A Servicing Perspective?
Servicing is the process of collecting and processing your payment and handling your escrow account after your loan closes.
It’s important to ask your mortgage lender about any hidden fees that might come up. For example, many lenders have an online payment service fee. This means that every time you go to make a payment online, you can be charged more than your payment amount.
The often-unspoken secret here is that your lender won’t necessarily know what fees you’ll be charged because they sell the servicing rights of your loan to make a little extra money shortly after your loan closes.
We offer both monthly and biweekly payments. You have the option to pay online, over the phone, through the mail and even through our Rocket Mortgage skill for Amazon Echo. In addition, we don’t charge any fees for paying off your loan early.
How Often Will You Communicate After I Close?
Having effective communication with your lender throughout the mortgage process is important, but do your prospective mortgage lenders communicate after the loan has closed?
This might not seem important, but asking if your lender communicates after closing will benefit you in the long run.
Our servicing team sends out valuable homeowner tips and information to help you manage your mortgage. They’ll also check in with you every so often. This allows Quicken Loans to check in to answer any questions you might have and to see if your current mortgage is still serving your financial goals.
What Do I Need To Bring To The Closing Table?
Being prepared and having everything you need for closing is important.
The first step to preparing to close on your new home is to communicate with your lender about what you need to bring to the closing table.
When working with Quicken Loans, the buyer brings a cashier’s check and driver’s license. Making sure you’re aware of what your mortgage lender requires can help you prepare.
What Happens If My Appraisal Comes In Low?
It’s important to understand what your mortgage lender does when the appraisal comes back too low.
A low appraisal can affect how much a mortgage company will loan you and how much you’ll have to pay out of pocket.
For example, if the home you want is $200,000 but is only appraised at $170,000, your mortgage lender will loan you the appraised amount and you’ll have to come up with the extra $30,000 on top of your down payment.
Your other option is to try to renegotiate with the seller.
Will You Sell My Loan?
The answer to this is probably yes.
It used to be that lenders would hold on to your mortgage and collect their money over 30 years as you made payments.
Now, the vast majority of mortgages are bought by major mortgage investors like Fannie Mae, Freddie Mac, FHA, etc. However, this doesn’t mean your relationship with your lender is over.
If you ever have trouble making your payment, the servicer is the one you call that can go over your options for potential relief as well, so knowing your servicer is incredibly important.
Hopefully this post has helped you figure out what you need to ask yourself when looking for a mortgage and the right mortgage lender.
Remember, taking on a mortgage is a big financial decision. We encourage you to talk to a financial advisor and/or one of our Home Loan Experts before moving forward.
If you would like to get started online, you can do so with Rocket Mortgage® by Quicken Loans. You can also give us a call at (800) 785-4788.
If you have questions, you can leave them for us in the comments below.