Know How to Respond to Your First-Time Mortgage Clients

Purchasing a first home is one of life’s most important decisions. As such, it is vital for a first-time home buyer to be fully confident in their choice of not only their home, but also the lender they choose to work with and the mortgage product that they will be tied to for the next 15 to 30 years.

While there is not much you can do regarding the home they pick, you do have control over how confident they are while using your mortgage company. It all comes down to your ability to answer all their questions and provide them with the mortgage product that best meets their wants and needs. With that in mind, here are ten of the most common questions asked by first-time mortgage clients and what you can say to help alleviate their concerns.

#1: How Much of a Down Payment Will I Need?

The typical first-time buyer will benefit most by putting 20% of the cost of the home down. This not only helps them reduce the overall price of the home, but it also helps them secure the lowest interest rate they can qualify for. Further, this makes it so they do not have to pay private mortgage insurance, which can save them thousands of dollars over the life of the loan. Of course, depending on the borrower, they may be able to qualify for a loan where they only have to put 3% or lower down.

#2: What Credit Score Do I Need to Get Approved for a Mortgage?

The answer to this question depends on a few different things, including the type of mortgage the buyer is interested in and how much they are putting down. Today, there are several mortgage products that buyers can apply for that do not have strict credit requirements. In fact, if the borrower is in good financial shape, they can often get approved even with a less than perfect credit rating.

If credit score is a big concern, then the buyer may want to try for a FHA loan, which can go as low as a 500 FICO score or a Fannie Mae or Freddie Mac loan, both of which require at least 620. Of course, the higher credit score, the better because an applicant with a strong credit rating will always receive a lower interest rate than one with a lower score.

#3: What is My Interest Rate?

This is always one of the most common questions asked because it can have such an impact on the buyer’s financial responsibilities over the loan’s term. Every buyer wants the lowest interest rate possible, but every buyer is different and interest rates can vary because they are based on a wide number of factors. In fact, even the property type will affect the buyer’s rate.

If the client is not happy with their quoted rate, then you should advise them to work on improving their financial position and their credit score or try to come up with more money to put down.

#4: How is the APR Different From the Interest Rate?

A lot of first-time buyers mistakenly think that the annual percentage rate (APR) is the same thing as the interest rate, so you might have to explain the difference to them, so they can be more informed about their process. Unlike the loan’s interest rate, the APR incorporates all the embedded fees of the loan.

As a result, when a home buyer purchases discount points to lower their interest rate, this usually causes the APR to increase slightly. This is not necessarily a bad thing, especially if the home is expected to be the buyer’s “forever home” because the savings they receive from having a lower interest rate will offset the higher APR over time.

#5: Are You Doing a Hard Credit Check on Me Today?

To give your mortgage client an accurate interest rate quote, you will need to do a hard credit check, which will show up on their credit report. So, if the client is not 100% ready to start the application process or they still want time to shop around, then you may want to advise them to wait until they are ready. Of course, you will have to explain to them that this will prevent you from being able to give them a firm interest rate quote.

#6: What Will My Monthly Payment Really Be?

There are so many factors that go into calculating what the borrower’s monthly payment will be that it can be difficult to answer this question accurately before closing. Because the total amount includes things like property taxes, homeowner’s insurance, and a range of other fees, the best you can do is give the buyer an estimated quote based on the data you currently have. The actual monthly payment included on their loan documents may be slightly higher or lower based on fluctuating factors, but you should give them some idea of what to expect.

#7: When Will My First Payment Be Due?

This will depend on when the buyer closes on the home and if they prepaid any interest at closing. In most cases, purchases that close late in the month will have their first mortgage payment due in just over 30 days. On the other hand, if the buyer closes early in the month, then they might not have to make their first payment for nearly 60 days.

#8: How Much of a Mortgage Can I Afford?

This is tricky question because what a borrower can be approved for is not always what they can afford. To help your client determine their affordability range, you need to consider the value of the home they want to buy, their monthly income and liabilities, their savings, property tax and insurance, and what their down payment will be. You will use this information to estimate their debt-to-income ratio which will break down how much money they have left over every month after their obligations are met and whether this will suffice for them to live at a reasonably comfortable level.

#9: Should I Get Pre-Qualified or Pre-Approved for a Mortgage?

The answer to this question depends on the buyer’s intentions. If the buyer just wants to find out if they can get approved for a loan and get an idea of how much they can get approved for, then getting pre-qualified will give them that information. But if they want to be able to make a qualified offer on a property, then getting pre-approved is the wiser choice because it is a much more involved process that guarantees their approval.

#10: How Quickly Can I Get a Mortgage?

Traditionally, it takes anywhere from 30 to 45 days for a typical mortgage transaction on a home purchase. But it can just as easily take up to 60 days or even longer depending on certain factors. A buyer can help their cause by ensuring that they provide all the required documents when they are requested. Should even just a single document be missing, it can cause a delay in their mortgage loan processing.

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