It’s natural to put all your focus on finding the right realtor during the home buying process. A good realtor has financing connections to help you get approved for a mortgage loan.
But just because the mortgage broker comes recommended doesn’t mean they are automatically a good fit. For instance, some countries require different accreditations to practice as mortgage broker. Australia requires a Certificate IV in Finance and Mortgage Broking, but the UK requires a Certificate in Mortgage Advice and Practice, so it’s a good thing to ask when talking to a potential broker. Following on from that, keep reading and take a look at these top 8 questions to ask a mortgage broker to ensure a good working relationship.
1. What Kind of Loan Should I Pursue?
The number of loan products on the market can be confusing. It can be tempting to take whatever loan option is presented when you’re excited about finding your dream home.
Remember, time is your friend before you get a home under contract.
It’s important to ask your broker to explain the various loan types available to you. You’ll be paying on this mortgage for the next 30 years so the terms and rate should work well for your future financial plans.
A few common mortgage types are:
- Fixed-Rate Loans are loans with a permanent interest rate throughout the life of the mortgage.
- Adjustable-Rate Loans have interest rates that fluctuate depending on market conditions. Your payments will vary throughout the life of the loan.
- Interest Only Loans give you the option of paying only the interest on your mortgage for a set period of time. Following the interest-only period, you’re responsible for making a balloon payment, or the entire principal balance.
- Negative Amortization Loans defers the interest on a loan for a predetermined period of time.
The various loan types vary to meet the financial needs of buyers of all income brackets. Talk with your broker about the pros and cons of each product as it relates to your personal circumstances.
2. Can You Explain APR?
Interest rates change daily. It’s impossible for your finance broker to know exactly what the interest rate will be when your loan gets approved.
But you will want to ask your broker to explain your annual percentage rate (APR). It’s calculated based on the overall cost of getting a new mortgage.
The annual percentage rate includes the cost of broker fees, discount points, interest rate, and other closing fees expressed in the form of a percentage. An APR tells you how much you are paying to do business with the mortgage broker.
Lenders determine the APR and their fees are not always competitive. The Truth in Lending Act requires that lenders share the APR with you in your loan agreement.
Review this number with your mortgage broker to make sure you are getting the best deal.
3. What Are the Down Payment Requirements?
The standard down payment for a mortgage loan is 20 percent. Ask your mortgage broker about alternative loan programs if you aren’t prepared with a 20 percent down payment.
There are federal loan programs for first time home buyers that allow you to put down as little as 3.5 percent. New programs come and go so its best to find out your options before beginning the buying process.
A program you heard about 10 years ago might not be around anymore to help you get a mortgage loan today.
4. How Does the Application Process Work?
Surprises can be a source of stress during the home buying process. Ask the mortgage broker how the loan application works to help you prepare in advance.
Gather all required personal financial documents and keep them together in a folder until you close on your loan. Ask the underwriter’s requirements for borrowers such as minimum credit score and debt to income ratio.
Ask the broker to provide you with a timeline of when documents are needed so you can prepare ahead. Learn the lender’s online platform for uploading documents to get familiar with the system in advance.
5. How Often Will I Hear From You?
Different styles of communication can make or break a relationship during closing. Ask your mortgage broker how often you should expect to hear from him or her.
You might not mesh well with a broker who only communicates early mornings when you’re in a standing meeting at work. You’ll want to work with a broker who can meet the needs of your schedule and desired form of communication.
Phone calls or email access might not be readily available for you during the week. Make sure your broker knows to follow up with you using the style of communication that helps you stay updated on the underwriting process.
6. Do You Have References?
It’s nice to have a realtor vouch for a mortgage broker, but asking for additional references is helpful in determining their level of customer services. The realtor deals with the mortgage broker from a professional perspective.
To buyers, there are both professional and personal circumstances in play. Talk to the broker’s past clients to see how the broker handled customer service.
7. Can I Lock in My Rate?
With the constant change of interest rates, some mortgage lenders offer buyers the chance to lock in an interest rate at a specific amount. Buyers usually do this if they expect interest rates to go up before closing.
Ask whether there are fees associated with getting a rate lock. Standard fees range from zero to one point.
8. Do You Guarantee On-Time Closings?
Most purchase contracts and lock-in rates expire after a certain period of time. It’s important to learn whether your mortgage broker can guarantee an on-time closing.
If they can’t you can discuss contingencies, to the purchase contract with your realtor. Ask what fees are unavoidable if the lender cannot close on the mortgage loan by the closing date.
Questions to Ask a Mortgage Broker
For current homeowners, questions to ask a mortgage broker might be different from when they were first time buyers. Mortgage lending programs change over time but the basics of the approval process, like determining affordability, remain constant.
Your mortgage broker is your personal guide to understanding the lending process throughout your homebuying journey. For more information and lifestyle tips, check our blog for updates.