What Questions Should I Ask a Mortgage Lender?

by Courtney Christensen

As a mortgage lender, we get a ton of questions every day from first-time borrowers and veteran homeowners alike. The housing industry is in a constant flux, so when it comes to buying a home, it’s never a bad idea to ask all the questions you can. Here are a few of the most frequently asked questions we receive from borrowers just like you.

Do I need 20% down to buy a house?

Absolutely not! In fact, most borrowers don’t have a 20% down payment. These days, most people don’t have an extra $40,000 lying around to put down on a home. Don’t let this deter you! It’s actually far more typical for borrowers, particularly ones buying their first home, to choose loan programs that allow for very low down payments or no upfront costs at all. Additionally, most states offer down payment assistance programs for borrowers who meet the income requirements.

What credit score do I need to buy a home?

This all depends on your situation and what kind of loan you need. Also, the economy plays a part in this as well. Currently, with the effects of COVID-19, the required credit score for most loans has been increased. This is often out of the control of the lender themselves as so many loans are backed by the federal government which sets its own requirements. Currently, most loans require a credit score of 620 or higher.

Why are there closing costs?

Closing costs are upfront fees paid at the closing table (the final step of the mortgage process). These are the culmination of all the fees for services you received during the mortgage process. Things like attorney fees, taxes, homeowners insurance, title fees, and lender costs. They’re usually about 3% of the sale price of your home and are paid by both the homebuyer and homeseller. Occasionally, these costs can be negotiated to be paid by the buyer or the seller exclusively, but you shouldn’t count on this being the case. It’s not very common!

How do I get a better mortgage rate?

This takes time, regardless of the method you choose. The best way is to raise your credit score. With a higher credit score, lenders can lower your rate because you’ve proven to be a low-risk borrower. The other way to get a better mortgage rate is to wait around for interest rates to change in the housing market. It’s in constant flux, so you may not need to wait longer than a couple months for interest rates to be more attractive. It’s important to stay in contact with your loan officer during this time as they can inform you when rates change!

Can I buy a house with student loans?

Definitely! While student loan payments factor into the kind of mortgage you can get and how much you’ll be able to borrow, many, many borrowers are able to balance payments for both every month. Plus, because your student loan payments are a factor, your loan officer will be able to look at those payments in comparison to your monthly income – they will make sure you can afford to pay off any loan they give you!

What is a preapproval and why do I need it?

A preapproval letter from your loan officer proves you are a good candidate for mortgage approval. It’s not the same thing as approval, of course, which requires a much more in-depth application process. Loan officers take a look at some basic information about you (your income and credit score are the two biggest ones) and make a judgement call – yes, you will likely be able to pay back a loan, or no, you won’t. The other great thing about a preapproval is that it lists an estimate of how much you could borrow. With this letter in hand, you and your real estate agent can narrow your search to houses you can afford. Plus, sellers like preapproved buyers since there is a less of a chance that your offer will fall through.

How much can I afford?

This is a loaded question, and one that we answer for each and every borrower who comes to us for a loan. By looking through your financial documents, we can tell you the maximum amount you can borrow – the absolute top limit of what your income and monthly debts will allow for. But, this isn’t usually the best option for many borrowers. Many experts say your mortgage payment and other housing expenses like utility bills should be about 36% of your income. You’re likely to be approved for more than that. So, while a lender can tell you what the numbers say, only you can decide what is affordable.

We hope that some of your questions have been answered here, but if you have more, please visit our FAQ page! If you still have questions, don’t be afraid to reach out by using our ‘Contact Us’ form or our social media pages.

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