Becoming a homeowner is a monumental step, and securing the right mortgage and asking the right questions play pivotal roles in this journey. A lot of the time, homebuyers aren’t sure what questions to ask and why – and that’s okay.
To help you make an informed decision and feel empowered throughout the process, we've gathered the top questions you should ask your mortgage lender and the reasons behind them. When choosing your lender, you want to work with a lender experienced in providing the loan options that best fit your requirements. To figure this out, some questions need to be asked.
Take time to familiarize yourself with the intricacies of mortgages and understand your financial capabilities. Armed with these questions and the information provided in this article, you'll confidently navigate the mortgage landscape and find the loan that aligns perfectly with your needs and your dreams.
Let’s Define: What Is A Mortgage?
A mortgage is simply a loan that borrowers secure in order to purchase their home. Similar to buying a car, the amount of the mortgage the borrower is able to obtain will depend on the value of the home as well as their own financial situation.
Defining A Mortgage Lender
A mortgage lender is a financial institution or individually licensed professional who provides loans, specifically known as mortgages, to individuals or entities seeking to purchase or refinance real estate properties, either directly or through a third party. We, Defy Mortgage, are a mortgage lender and a mortgage broker, for example.
Top Questions To Ask Your Mortgage Lender Before The Loan Process
What states are you licensed in?
If you are purchasing a home or refinancing a home in Florida, but the mortgage lender isn’t licensed in the state of Florida, there will be a conflict in working together. Make sure to double-check with your lender right from the start that they are licensed in the place in which you reside or are looking to purchase. At Defy Mortgage, we are currently licensed in CO, FL, OR, MT, TN, TX, and WY.
How do I get pre-approved?
This is a very important question and a step in the loan process. You’ll want to get pre-approved for a mortgage before house hunting as these documents clarify your creditworthiness and affordability. Pre-approval letters provide you, your real estate agent, and sellers with an idea of your financial situation and provide confidence that you’ll be able to fulfill the obligations you take on when buying a home.
Our mortgage consultants at Defy will guide you through the process, simplifying your home search. Start with pre-approval, and if you need help, we’re here.
What documents are needed for approval?
Get a clear list of necessary documents such as tax returns, credit history, and employment verification. Mortgage applications require various documents, such as tax returns, pay stubs, bank statements, and more. Ask the lender for a clear list of all the documentation they'll need from you to process your loan application smoothly.
Your loan type will also impact which documents are necessary for approval – such as income statements, credit history, and employment verification. Some loans, like DSCR loans and construction loans under the Non-QM umbrella for example, don’t require tax returns, employment or income verification.
What are the available loan options?
Understanding various loan types beyond the traditional conventional options such as conforming, FHA/VA, and jumbo loans is important. There are numerous non-traditional options such as bank statement loans, perfect for self-employed borrowers, DSCR loans for real estate investors, P&L loans, construction, asset depletion, fix and flip – the list keeps going.
Having this conversation with your Mortgage Consultant and exploring your options enables you to pick the one that best suits your situation and your needs. And yes, this also includes asking about interest rates and lock-in periods. Your realtor, and our team at Defy, can help guide you in the right direction.
What is a non-traditional or Non-QM loan? Is it right for me?
Non-QM (Non-Qualified Mortgages) loans are mortgage loans that do not meet the qualified mortgage (QM) criteria set by the Consumer Financial Protection Bureau (CFPB). There can be several reasons that borrowers might not meet “traditional” qualified mortgage (QM) criteria, from, not meeting the traditional income or credit requirements of a conventional mortgage, to being self-employed, having a higher debt-to-income ratio, not being about to show proof of income or accurate proof of income, etc.
They have less strict guidelines and more flexible underwriting standards, making them accessible to those in unique financial situations, self-employed individuals, 1099 (contract workers), those who might be missing documents, lack US credit history, individuals who invest in real estate, have a surplus of liquid assets that they want to use toward loan qualification, and/or have a high-net-worth. Learn more about Non-QM loans here.
What is the difference between a soft and hard credit pull?
You’ll want to explore the differences as one is a preliminary inquiry that does not affect your credit score, while the other does. Ask your mortgage lender to explain the differences and when they do the pulls. At Defy, we are very transparent about each step and work alongside you so that there are no surprises when it comes time for the hard pull.
What is the downpayment requirement?
This is key to ask as it’s the initial payment that you will need to make toward the purchase of a property. The specific down payment requirement will depend on the mortgage program, the lender's guidelines, and your financial situation. Discuss your options with your mortgage lender to determine the most suitable down payment amount based on your individual circumstances.
What are the loan application and approval fees?
Depending on the lender, you may submit a loan application. Each lender has specific fees. There are certain costs that you can shop for – such as a credit report or appraisal – and others you can which include title insurance. At Defy, there are no application fees and zero obligations when you apply.
What are my rate options?
Familiarizing yourself with the available rate alternatives not only aids in your financial planning but also empowers you to discern and evaluate the merits of fixed rates, adjustable rates, and interest-only loan options, thereby enabling you to make an informed decision aligned with your specific needs and preferences.
Do I need to be a US citizen?
The answer will vary by loan type. If you are not a US citizen, talk to your mortgage lender. There are loan options available for international buyers and foreign nationals without a Social Security number, green card, or visa. To learn more about Foreign National loans, click here.
Top Questions To Ask Your Mortgage Lender During The Loan Process
What should I know about the appraisal process?
Your lender will order an appraisal through an approved expert to receive a third-party evaluation which determines the appraised value.
What are the origination fees?
Some lenders have fees for originating loans. Origination fees can vary depending on the type of loan, the lender, and the specific terms of the loan agreement. These fees are intended to cover the administrative costs and expenses incurred by the lender when processing and approving a loan application and can vary greatly from lender to lender.
Can you explain the loan estimate and closing disclosure?
You will be provided with a loan estimate document detailing loan terms, down payment requirements, projected monthly payments, and closing costs. This provides you with a clear understanding of the potential costs associated with borrowing, and helps you compare different loan options effectively. The lender must provide you with a loan estimate within 3-business days of application.
Closing disclosure costs will include lender fees and third party fees such as title insurance. Having these documents and asking this question will help you to avoid unexpected expenses. Your lender must give you your closing disclosure at least 3-business days before your loan is scheduled to close so that you have time to review and ask questions.
Do I need to pay private mortgage insurance (PMI)?
This depends on your down payment amount. Typically, if your down payment is lower than 20%, PMI may be required. Your lender will help you determine if it is and what your options are during the loan process.
What are the implications of various interest rate lock-in periods on my loan, and how do they align with the projected timeline for closing?
This question addresses the potential changes in interest rates during the time between pre-approval and closing. Once you’ve secured a property or are ready to commit to the loan, you can either lock your interest rate or choose to float your rate prior to closing.
What is the closing process like and who is involved?
Your answer will vary depending on the lender, however, it will provide you clarity on the expectations, steps associated with the closing process and information of the parties involved. The closure will help coordinate with you and all relevant parties to ensure a smooth closing.
What's the timeline for loan approval and closing?
Understanding the timeline is important. Getting preapproved and knowing when you expect to close on your new home are critical. Once you’ve found a property and are ready to proceed, the lender will work with you to meet your closing date. Our Defy team can close within two weeks. This will assist in coordinating with your realtor, your moving plans, making sure you meet deadlines, inspections, appraisals, etc.
At Defy, we are here to walk you through every step of the loan process so that you feel empowered at every turn. In addition to asking the right questions, it’s crucial that you educate yourself about all things mortgage. This includes the steps, the requirements, the benefits, the options, the timeline, homebuying mistakes not to make, and more. Doing so will minimize confusion and stress along the way, and ensure you know what you’re looking for.
At Defy Mortgage, we have a variety of different educational resources to help you throughout your purchasing journey, including:
- A robust set of mortgage and real estate industry articles which can be found on our blog, The Digital Deed.
- A mortgage calculator that allows you to estimate your monthly mortgage payment, including taxes and insurance, to calculate your payment breakdown, schedule, and more.
- Social media channels on Facebook, X (formerly known as Twitter), LinkedIn and Instagram where we discuss topics such as industry tips in our Tip Tuesday series, industry facts every Friday, industry news every Monday, and highlight solutions to questions, concerns, and pain points from other homebuyers with the goal of providing useful information to our realtor partners and better serving our clients.
We are committed to providing customized loan solutions that cater to your specific needs. Whatever your situation may be, we are dedicated to assisting you every step of the way. Explore our website to learn more about your loan options and how we can assist you.