For first time home buyers, getting a mortgage can feel like a daunting task. It is vital that you ask your lender the important questions to ensure that you fully understand what your mortgage involves and to make sure that you are getting the best deal possible.

Before you ask questions about the specifics of your mortgage, it is helpful to learn more about your mortgage lender. You may want to ask how long they or their company have been working in the mortgage business. You might also want to find out about their educational qualifications, just as you would with any other professional. Finding out some background information on your lender can help you to feel comfortable with the person you are working with and confident with their ability to get you the best mortgage.

There are also many questions specifically about the loan that should be addressed.

What type of loan is best for me?

Hopefully if you've read through the rest of our mortgage basics section you'll already know the answer to this, but if not, this is definitely the first question that needs to be answered. There are many different loan types to choose from, including fixed-rate, adjustable-rate, interest-only, and negative-amortization. Some of these loans have changing interest rates as well, so it is important to know whether the loan you choose has a fixed rate or not. Your lender should be willing to explain all of your options and why a particular loan is best for you.

It may also be helpful to ask your mortgage lender what type of loan they have on their own home. Individuals working within the lending industry will generally choose the smartest loans and mortgage rates for their own homes.

What is the interest rate and APR?

The interest rate is important to know because it will be used in calculating your monthly payments, and it will also indicate how much you will need to pay over the lifetime of the loan.

The annual percentage rate (APR) takes into account the interest rate in addition to all other lender fees, divided by the life of the loan. The APR is a good way to compare other offers that you may have received at a different lending agency.

What other costs are associated with this mortgage?

Many first time home buyers are naïve to the amount of costs required at closing. Some are fees for the lending institution, but there are a number or other fees that can be assessed at closing, including taxes, recording feeds, appraisal, home inspection, pest inspection, credit reports, and the lender's title policy.

Lenders are required by law to provide the buyer with a good faith estimate of their closing costs within three days of their application. It is important for the buyer to go through the lists of costs carefully to ensure that they are familiar with what each one means.

Am I required to pay discount points or origination fees?

A lender may decide to charge you discount points up front to lower your rate. One discount point is equal to one percent of the amount of the loan, so the cost of one mortgage point if you are financing $80,000 would be $800. The lender may also charge origination fees, which are to cover the costs associated with developing the loan.

Is there a penalty for prepayment?

Some lenders charge a penalty if the borrower decides to refinance and pay off the balance of the loan early. Some states no longer allow prepayment penalties, but if your state does you will want to know ahead of time how much the penalty will cost you.

What are the payment terms?

Different lenders may require different types of payment. You may have to mail in a check or arrange with have an automatic withdrawal from your bank. You should also ask about late fees and how long after the missed payment they are applied.

Here are some more questions you can choose from and add to your arsenal.