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11 Questions First-Time Home Buyers Should Ask Their Mortgage Lender

7-minute read

It’s okay to feel like you want to call your lender all the time when you first buy a home. After all, asking your lender the right questions can make the home buying process much less stressful.


We’re going to cut to the chase and provide the questions you should ask your lender before you sign on your home loan.

1. How Do I Determine How Much Home I Can Afford?

One of the first things that you need to think about when you shop for a home is your budget. Knowing how much home you can afford can help you narrow your search and keep your expectations realistic when you start shopping.


A lender can tell you how much you’ll be able to afford by looking at your income, assets and credit to determine your monthly payment, interest rates and more. They’ll also help you figure out how much of a down payment you’ll need, plus the amount you’ll pay in closing costs, property taxes and other costs that will figure into your monthly mortgage payment. It’s a great idea to arm yourself with this information before you even start searching for a home.


Looking for an easy way to estimate how much you can afford to pay for a home on your own? The Rocket Mortgage® mortgage calculator can help you determine how much you’ll pay per month. Play around with the mortgage calculator to get a better idea of how much home you can afford.

2. What Credit Score Do I Need To Qualify For A Mortgage?

Your credit score is a three-digit number that tells lenders how likely you are to pay back money that you borrow. You could have an easier time getting a mortgage loan if you have a high credit score, but you can still buy a home if you have bad credit.


Each individual lender sets their own standards when it comes to what they consider an acceptable credit score. That’s why it’s especially important to ask about credit qualifications early.


If you have a good credit score, you may also want to ask your lender if you qualify for any special offers or lower interest rates.

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Our sister company Rocket HQSM can show you where your credit stands.

3. Do You Offer Mortgage Points?

Mortgage points (sometimes called “discount points”) are an optional fee that you can pay at closing to “buy” a lower interest rate and save on the overall cost of the loan. The cost of each mortgage point is equal to 1% of your total loan. For example, if you take out a $150,000 loan, you may have the option to buy mortgage points for $1,500 each at closing. Mortgage points are most beneficial for buyers who plan on living in their home for a long time because you can save tens of thousands of dollars over your loan term.


Ask your lender whether or not they offer mortgage points. If your lender does offer points, ask when it makes sense to buy them. Also ask how much each point lowers your interest rate and the maximum number of points you can buy.

4. Do I Need An Escrow Account?

An escrow account is a type of neutral savings account that holds money for prepaid property taxes and insurance premiums. Escrow accounts are usually established during closing. You’re required to have an escrow account for some government-backed loans. Escrow accounts are optional for conventional loans, though some lenders do require them.


Ask your lender if you need an escrow account. If you do need one, ask your lender what options you have for paying for shortages and whether you can get a refund if you overpay. Find out how much money you’ll need to hold in escrow.

5. What Is A Mortgage Rate Lock And Is It For Me?

A mortgage rate lock is an agreement between you and your lender that says that your interest rate will stay the same until closing, regardless of market movements. Rate locks are important because they keep your loan costs predictable. When you get a rate lock, you can rest easy during the home shopping and closing process because you’ll know that your interest rate won’t increase. Unfortunately, a rate lock also means that your rate won’t go down if market rates decrease.


Ask your lender about rate locks and how long they’re valid for. Ask your lender to tell you about current market rates (are they high or low?) and whether you should lock your rate.

6. Can I Buy A House Without My Spouse?

Buying a home without your spouse is possible. However, it’s not as easy as applying for a loan and leaving your partner off the paperwork.


If you live in a state with a community property statute, you must share ownership of any assets you gain during your marriage with your spouse. If you live in a common-law state, you can leave your partner’s finances off the paperwork when you buy a home. Certain types of government loans require your lender to consider your partner’s debt and income when you apply for a loan, even in common-law states.


Ask your lender if it’s possible to buy a home without your spouse. Your lender should know whether you live in a community property state or a common-law state. Also, ask about quitclaim deeds, which allow you to add your spouse’s name to the title later on if you choose.

7. Do You Offer Conventional Loans, Government-Backed Loans Or Both?

There are two major categories of mortgage loans: conventional and government-backed. Conventional loans are open to anyone, and lenders can set their own standards when it comes to down payment and credit score requirements. Government-backed loans are insured by the federal government. This means that if you stop paying your bills, the government will pay the lender when you default on your loan.


Government-backed loans are less risky for lenders, so they have lower down payment and credit requirements. However, you need to meet certain standards to qualify for government-backed loans. For example, you need to meet U.S. Armed Forces service requirements for a VA loan, and you must live in a rural area to get a USDA loan.


Not every lender is legally qualified to offer both conventional and government-backed loans. Ask your lender which types of loans they offer. Your lender should be able to explain the different requirements for each government-backed loan.

8. How Much Income Do I Need To Buy A House?

There is no set dollar amount of income you need to have in order to buy a home. However, your income does play a significant role in how much home you can afford. Lenders look at all of your sources of income when they consider you for a loan including commissions, military benefits, child support and more.


Ask your lender how much income you need to buy a home and which streams of income they consider when they calculate your total earning power. Finally, ask your lender what documents you need to give them to prove your income such as W-2s, pay stubs, bank account information and more.

9. Do I Need Preapproval Or Prequalification?

Preapproval and prequalification are two processes that are often confused with one another. During a prequalification, a lender asks you questions about your income, credit score and assets to give you an idea of how large of a loan you can get. However, they don’t verify any of this information. This means that the number you get during prequalification can easily change if you report incorrect information.


Your lender verifies your income, assets and credit information during a preapproval. They ask to view your credit report in order to verify your scores and search for things like bankruptcies or foreclosures. During preapproval, you’ll also need to provide documents like W-2s, bank statements and tax returns to prove your income. This allows your lender to give you the best estimate possible of how much of a loan you can get.


Ask your lender about the difference between prequalification and preapproval, because it often doesn’t mean the same thing from lender to lender. Then, ask which one is right for you. The answer will change depending on how serious you are about buying a home at the time you apply.

10. How Much Of A Down Payment Do I Need For A House?

You might assume you need a 20% down payment to buy a house. This actually isn’t true – in some cases, you can buy a home with as little as 3% down. Certain types of government-backed loans even allow you to get a mortgage with 0% down.


The often-quoted 20% figure has to do with avoiding private mortgage insurance (PMI). PMI protects your lender if you default on your loan. You can cancel your PMI as soon as you build 20% equity in your home and your lender will automatically cancel PMI as soon as you reach 22% equity in your home.


Check with your lender to find out about how much of a down payment you need to have at closing. Ask about government-backed loans and whether you qualify for a 0% down loan. Finally, ask about PMI requirements and when you can cancel PMI if you’re required to have it.

11. What Will My Closing Costs Be?

Closing costs are processing fees that you pay to your lender to close out your loan. Some common closing costs include appraisal fees, origination fees, attorney fees and title insurance. The specific closing costs you’ll pay depends on where you live, your down payment and the size of your property. Closing costs will usually run between 3% – 6%of the total value of your loan.


Ask your lender about the average closing costs in your state. Also ask what fees and inspections are legal requirements, which are optional and which services you can choose for yourself. 

Summary

Asking your lender a handful of questions ahead of time can help make purchasing a home easier and less stressful for you. Make sure you ask your lender plenty of questions about down payment and income requirements, the types of loans you qualify for and closing cost requirements. You’ll also want to ask your lender about their in-house requirements for escrow, credit score, preapprovals and rate locks so you get a well-rounded idea of what you can expect.

Find out what you can afford.

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