For most people in the country, mortgages are the only way they can finance a home. As a rule of thumb, lenders allow you to borrow about 28% of your pretax monthly income. You can borrow a higher amount, but anything more than 28% can put a financial strain on your living expenses.
Hiring a mortgage broker will help you connect with a suitable lender. They act as intermediaries between borrowers and lenders and find the best lender that fits a borrower’s financial situation.
There are plenty of questions to ask a mortgage broker before signing any papers for the best results.
In this post, we’ll look at the most important ones.
1. How Much Down Payment Does the Lender Require?
The standard down payment for any mortgage is around 20%, but that’s not always the case. Qualified individuals might pay down payments that are as low as 3% with some loan types. However, there are both upsides and downsides to paying a low down payment.
Liaise with your mortgage broker to know whether low down payments are right for your situation. If you get anything below 20%, there’s a likely chance that you’ll have to pay for private mortgage insurance. This means that although you pay a small down payment, the closing costs and monthly payments will be more.
2. What Is the Best Loan Type for Me?
Any mortgage broker worth their name will gather sufficient information about your case before proposing the best loan option for you. The broker must also comprehensively explain each type of loan so you can make the right decision.
Some of the options you’ll most likely include a fixed-rate loan, an interest-only loan, adjustable-rate-loans, or a negative amortization loan. The broker should pick the best loan type for you and explain why that’s the case.
Besides the information you get from your mortgage broker, make sure you research. This is just to make sure that the broker doesn’t lead you astray.
3. What Is the Interest and Annual Percentage Rate?
Ensure the mortgage broker tells you about the loan’s interest rate and how much interest you’ll pay after completing the loan. Apart from the interest rate, you should also get information about the annual percentage rate or the APR.
The APR is arrived at after complex calculations that involve many variables, including the interest rate. Different brokers have different ways of calculating APRs, and finding an accurate figure may be a tad difficult for some loan types. Take note that lenders don’t consider early payoffs during APR calculations.
The mortgage broker must give you accurate figures for both the interest rate and APR. For adjustable mortgages, ask your broker whether they can get details on the lender’s adjustment frequency. These figures can help you know how much you should expect to pay after borrowing the mortgage.
4. What Are the Total Costs?
The broker should give you an estimate of the total cost of the mortgage in a document known as the loan estimate. It’s a federal government requirement that the broker furnishes you with this document. It will give details about the loan’s total cost, including credit reports, appraisals, taxes, pest inspection reports, title policy, and even escrow.
Remember, you should ask for the loan estimate before borrowing the mortgage. That way, you can tell whether it’s a good idea to borrow the mortgage.
5. Should I Worry About a Prepayment Penalty?
A prepayment penalty means a penalty to pay the lender if you complete the loan repayment early. Not all states allow prepayment penalty. Ask your broker whether prepayment penalties are applicable in your state.
If the state allows prepayment penalties, your mortgage broker should tell you the terms and conditions. In most cases, you’ll have to pay the lender six months’ worth of unearned interest if you pay off the loan early. However, for some states, these penalties only apply during the first two to five years of the loan.
6. Can the Lender Approve In-House Loans?
Before underwriters approve or reject loans, they first must issue specific conditions while reviewing the loans. Find out from your broker whether the lender you’re dealing with handles the underwriting or they outsource.
FHA and VA loans may take longer to approve because it needs government approval. However, the federal government has allowed some lenders to approve their loans without sending them to the VA or FHA.
7. Will the Lender Close on Time?
Closing time is a crucial factor when considering the lender for your mortgage. On the purchase contract, you’ll find details on the date to close escrow. However, this date depends on whether the lender can close on the stipulated closing date.
As such, it’s important to ask your broker whether the lender guarantees to close in time. Delayed closing times could translate to additional costs on your part.
8. Can You Lock Your Loan Rate?
Interest rates rarely remain stagnant and are likely to fluctuate even within your loan period. If you have reason to believe the interest rate will increase, try to find out from your broker whether you can lock your loan rate. In doing so, you won’t have to pay more should the loan rate skyrocket.
Not many lenders are willing to lock their borrower’s loan rates. However, an accredited mortgage professional can work something out with the lender. Ask whether your mortgage broker can get the lender to lock your loan rate.
Most Important Questions to Ask a Mortgage Broker
These are the most important questions to ask a mortgage broker for the greatest results. Remember, the more control you have over the process, the better it is for you. However, you need to hire a reputable mortgage broker for the best deal.
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