What Should You Ask Your Mortgage Lender

Applying for a mortgage can be complicated and sometimes tedious, but a little preparation can go a long way, particularly for first-time homebuyers. With a few simple steps, homebuyers can make the process a little easier for both themselves and their lender.

Following are six questions you should ask when discussing your mortgage options with your lender.

1. What type of mortgage should I apply for? There are several different types of mortgages. One of the first questions you should ask a lender is which option is best for your situation. While many borrowers will choose a conventional mortgage, there are other options available. For example, borrowers with low- to moderate-income levels may qualify for a government-insured loan, which may have lower credit score requirements and can also require a lower down payment.
2. How much can I borrow? There are many factors that will determine your loan qualification amount — income, debt, employment status, credit history, etc. Your lender will be able to take all of this information into consideration.
3. How much do I need for a down payment? Typically, 20% is the magic number when it comes to down payments. Putting 20% down can lead to lower interest rates and can also eliminate the need to purchase mortgage insurance. Minimum down payments vary, however, based on the type of loan you apply for, so this will be an important topic to discuss with your lender.
4. What interest rate do I qualify for? This will determine the total amount you will pay over the life of the loan, and it could determine whether you are financially ready to move forward with a mortgage application.
5. What documents do I need? Lenders will be able to provide a checklist of documents you will need to process your mortgage application. These may include tax returns, pay stubs, W-2s, bank statements and more. Knowing what you need ahead of time will allow you to pull those documents together and help your lender process your application more quickly.
6. How much will I pay in closing costs? There are several fees a bank will charge for a mortgage loan.  Closing costs may include origination fees, appraisal fees and credit report costs, attorney fees and underwriting fees. Once you apply, your lender will provide you a loan estimate that will give you an idea of how much you will pay in closing costs for the loan you requested.

Other Factors to Consider
While the questions above are important to ask your lender, there are several other factors you can examine before you start the application process.

First, ensure your credit is in good standing and know your credit score, which your lender will use to determine your ability to pay debts. While some government loan options may be available for borrowers with lower credit scores, many lenders will not be able to approve a loan to a borrower with a credit score in the low 600s.

Next, before you start the mortgage application process, try to eliminate as many debts as possible to improve your debt-to-income ratio. Your lender will use your DTI to determine the mortgage amount you qualify for.

More Information
If you are interested in starting a mortgage application or would like more information about applying for a loan, contact your local Iowa State Bank office.