Mortgages are complicated, and potential homeowners often have a lot of questions about the process and how to decide which option best suits their needs. Many borrowers choose to work with a mortgage broker to help them navigate the borrowing process. Here some answers for what to ask a mortgage broker.
What Does A Mortgage Broker Do?
Mortgage brokers are licensed professionals who work with a range of lenders to help borrowers find the perfect loan product to finance their home purchase. While mortgage bankers only offer the products of their own bank, mortgage brokers give lenders access to loans from a range of different lenders and help them find the most favorable terms possible.
What To Ask A Mortgage Broker
Mortgage brokers have a wealth of experience to draw from and will likely explain everything you need to know about the process. However, there are a few questions you will want to ensure that your broker addresses before you commit to a particular mortgage.
Which Type Of Loan Might Be My Best Option?
A good mortgage broker will try to find out as much about you and your situation as they can before presenting you with loan options.
Be sure to ask them to explain the pros and cons of the various types of loans that are available, such as fixed-rate loans, interest-only loans, negative amortization loans and adjustable rate loans.
What Is The Interest Rate And Annual Percentage Rate?
Be sure to discuss each mortgage’s interest rate and annual percentage rate with your mortgage broker. A loan’s annual percentage rate, or APR, is determined using complex calculations that factor in the interest rate and lender fees divided by the loan’s term. Different brokers may compute APR differently, and this figure does not account for any early payoffs.
You should also ask your lender about the adjustment frequency if you are seeking an adjustable interest rate, along with the maximum annual adjustment, index, margin and highest rate.
How Much Of A Down Payment Is Required?
Although 20 percent may be the standard down payment on a mortgage, there are cases where you may be able to pay less. For example, a well-qualified borrower may be able to pay as little as 3 percent down on some types of loans, but it is important to discuss the pros and cons of doing so with your mortgage broker.
You may need to pay private mortgage insurance if you make a lower down payment, which can add to closing costs and monthly payments until you reach an 80 percent loan-to-value ratio. Your broker should be able to advise you on the best course of action in your circumstances.
What Are The Discount Points And Origination Fees?
A discount point on a mortgage is equal to one percent of the amount of the loan. In other words, two points on a loan of $100,000 would cost $2,000. These points are tax deductible and can be used to buy down the interest rate; the more points that you pay, the lower your interest rate will be.
In addition, lenders may charge origination fees that are upfront fees for processing your mortgage loan application. Lender fees can amount to as much as one percent of the amount of the loan, so it is important to discuss this fee with your mortgage broker. In some cases, mortgage brokers may be able to take advantage of the good relationships they have with lenders to negotiate a lower fee.
What Other Costs Are Included?
It is also important to establish which costs will be included in the price of the loan. You can expect to pay lender fees along with third-party vendor fees such as credit reports, the title policy, appraisals, taxes, recording fees, pest inspection reports and escrow where applicable.
Your mortgage broker should provide an estimate of all of these fees in the Loan Estimate document that federal law requires brokers give to borrowers. This document should include your name and Social Security number, along with the address of the property and its estimated value, the amount of the loan and your income. It is important to receive this document and study it carefully before applying for a particular loan.
Is There A Prepayment Penalty?
Prepayment penalties allow lenders to collect six months of additional unearned interest if a borrower pays off their loan early, whether it is through a refinance or selling the property. Some of these penalties may only be in effect during the first few years of the loan, so it is important to get clarification on this point.
In addition to asking about the terms of the repayment, find out whether the penalty would still apply if you were to refinance through the same lender in the future.
How Much Time Do You Need to Fund?
According to The Balance, the average time to process a home loan is 43 days1. Closing date must be included in the purchase contract, so it is important to coordinate this date with the lender. Ask your mortgage broker for the anticipated turnaround time and whether any obstacles may hold up the closing, as well as how long it will take after the application gets final approval for the loan to fund.
Talk With The Mortgage Brokers At MyLendingPal For More Answers On What To Ask A Mortgage Broker
If you would like to find out more about how a mortgage broker can help you save time and money in obtaining the funding you need to buy a home, get in touch with the experienced mortgage brokers at MyLendingPal.