You've probably heard the term mortgage broker from your real estate agent or friends who bought a home. But what exactly is a mortgage broker and what does one do that is different from, say, a bank loan officer? You can also choose to pay the mortgage broker yourself. Do you remember what we said earlier to brainstorm your goals? This is where it will come in handy, as it will lay the groundwork for your trip to the property. If this is your first time buying a home, you may be wondering what questions to ask when talking to a mortgage lender.
We've put together 14 essential questions to ask your lender or mortgage broker so you can rest easy knowing you're ready for what lies ahead. A conventional 30-year fixed-rate mortgage loan is the most common type of mortgage loan. Because the term is so long, the monthly payments are lower and the fact that the rates are fixed means that your interest rate will stay the same for the entire life of the loan. However, the longer the term of your mortgage, the more interest you'll have to pay on the loan. So, if you can afford higher monthly payments, it may be worth choosing a term of 15 or 20 years.
Mortgage points (sometimes referred to as “discount points”) are an optional charge you can pay at closing to “buy a lower interest rate and save on the total cost of the mortgage loan.” The cost of each mortgage point equals 1% of your total loan. Ask your lender how much income you need to buy a home and what sources of income they consider when calculating your total purchasing power. Finally, ask your lender what documents you need to provide to prove your income, such as W-2 forms, pay stubs, bank account information, and other materials. You might assume that you need a 20% down payment to buy a home. However, in some cases, you can buy a home with as little as 3% down payment.
Certain types of government-backed loans even allow you to get a mortgage with a 0% down payment. The oft-quoted 20% figure has to do with avoiding private mortgage insurance (PMI), which protects your lender if you don't pay back your loan. You can cancel the PMI of a conventional loan as soon as you accumulate 20% of equity in your home, and your lender will automatically cancel the PMI as soon as you reach 22% of your home equity. Closing costs are the processing fees you pay to your lender to pay off your loan.
Some typical closing costs include appraisal fees, opening fees, attorney fees, and title insurance. The specific closing costs you'll pay depend on where you live, your down payment, and the size of your property. Closing costs typically range from 3% to 6% of the total value of your loan. The 14 questions we just reviewed can serve as a starting point when choosing a mortgage lender.
The following questions aren't necessarily what you should ask your potential lender, but they are questions you may still have about the process of finding a mortgage lender. Mortgage insurance is generally required for most loans with a down payment of less than 20%. The type of insurance varies depending on the loan, and the amount you pay may vary depending on the lender. PMI, for example, can cost between 0.5% and 1% per year. Mortgage Basics: Read Rocket Mortgage in 4 Minutes, 1050 Woodward Ave.
Before starting conversations with a mortgage broker, it's critical that you research mortgage options and rates. Yes, ask about exit fees, as these are charges you might face if you refinance or pay off your mortgage early, affecting the cost of changing your mortgage product. Depending on your situation and the lender's requirements, your mortgage broker will provide you with a detailed list of the documents they will need. You can save time by going to a mortgage broker; getting pre-approval from different lenders can take hours.
In addition, there is the necessary reciprocal communication to subscribe to the loan and ensure that the transaction is carry out on the right track. In addition to asking you several questions and consulting several documents, your mortgage broker will also ask for your consent to check your credit file. Be sure to ask your mortgage lender (or broker) a lot of questions about income requirements, the types of loans you qualify for, and how much you have to save for a down payment and closing costs. Mortgage brokers value customers who have done their homework, as this means they can spend less time on the basics and more time adjusting their mortgage options.
Always be cautious and check with your mortgage broker about what you can realistically afford. A mortgage broker must understand where you are in your real estate journey and explain the homebuying process to you from start to finish. Even before you formalize your professional relationship with a mortgage broker, it's important to ask them how you will be compensated. Mortgage brokers not only help you determine how much money you can borrow to buy a home, but they will also help you find the best mortgage for your personal circumstances and guide you through the financial process from start to finish.
Some mortgage brokers work primarily with specific financial institutions and promote lenders with whom they have long-lasting relationships. Some real estate companies offer an in-house mortgage broker as part of their suite of services, but you're not required to choose that company or person. Preparing yourself with the right questions and having a solid understanding of mortgage terms is crucial when preparing to meet with a mortgage broker. However, you should also ask your mortgage lender about the annual percentage rate (APR), as it provides information about the total cost of borrowing money. That law, the Dodd-Frank Act, also prohibits mortgage brokers from charging hidden fees or basing their compensation on the borrower's interest rate.
