A home is one of the largest purchases you will ever make, so it is important to carry out due diligence in ensuring you are getting the best deal. In addition to buying a home that is fairly priced and within your budget, you want to ensure that you are getting a loan with favorable terms that you can afford in the long run. Many buyers turn to mortgage brokers to guide them through the process of finding and securing the right loan for their situation. Mortgage brokers are financial professionals who help match borrowers with lenders.
Although they are able to originate loans, they do not close and fund them, Instead, they provide access to loans from a variety of lenders. Mortgage bankers, on the other hand, only offer their own bank’s products and fund the loan with their bank’s funds.
If you are a first-time buyer, you probably have a lot of questions about how the process works. Here are some of the questions you should ask when you meet with a mortgage broker.
What Types Of Loans Are Available?
Several types of mortgage loans are available, and it is important to clarify which ones are appropriate for you and which ones your mortgage broker offers. One of the biggest points to keep in mind is whether a loan has a fixed rate or an adjustable one.
A fixed-rate mortgage sees a set interest rate charged on the loan that will not change at any time during the life of the loan. The amount of principal and interest that are paid each month may vary across payments, but the total payment remains the same, making it easier for homeowners to budget.
An adjustable-rate mortgage, on the other hand, has a variable rate that can change periodically. Monthly payments might rise or fall at different points in the life of the loan.
The initial interest rate is often lower than the rate seen on a comparable fixed-rate loan. At the end of this fixed-rate period, however, the interest rate will move according to the index to which it is tied as specified in the loan paperwork.
You should also find out whether some special mortgage types are available to you. For example, FHA loans might allow you to qualify for a mortgage with a slightly lower credit score than other options.
VA loans are aimed at active-duty service members and other qualifying veterans and offer low-interest rates, while USDA loans aim to encourage development in rural areas.
Which Mortgage Is Best For Me?
Ask your broker to put the various mortgage options that are available to you in writing and explain the strengths and weaknesses of each one. Do not hesitate to ask questions about anything you do not understand.
How Much House Can I Afford?
Getting prequalified for a loan might help you identify the high end of your budget, but it is not always wise to buy a house that falls within the higher end of your price range. Spending so much money on your house that you are not able to handle emergencies and other occasional splurges could be a big mistake.
Your mortgage broker can help you determine a comfortable house payment and identify the right price for you to aim for when shopping for houses and negotiating prices. Generally speaking, you should not spend more than a third of your monthly budget on housing costs.
How Much Do I Need To Save For A Down Payment?
A mortgage broker can help you determine the right amount of money to save for a down payment. Although you might qualify for a USDA or VA loan that does not require a down payment, there are some reasons it may be preferable to make a higher down payment if your budget allows it. For example, it may allow you to avoid paying private mortgage insurance.
What Fees Are Involved?
A mortgage broker typically receives a small percentage of the loan amount as a fee. This could amount to 1 or 2 percent of the loan. The borrower might pay this as a lump sum at closing, in which case it may be possible to roll the fees into the loan amount.
In other cases, the lender might pay the broker after closing. In these situations, the broker’s commission might be built into the cost of the loan.
It is important to keep in mind that federal law bans brokers from charging borrowers fees that exceed 3 percent of the loan amount, hidden fees, or fees that are tied to the interest rate of the loan. Moreover, brokers cannot be paid by both the borrower and the lender, nor can they receive kickbacks from affiliated businesses.
Reach Out To The Experienced Mortgage Brokers
If you are considering buying a house, get in touch with MyLendingPal. Our mortgage brokers are experienced in guiding first-time buyers through the mortgage process and answering all of your questions so we can help you find the right loan.