A large part of a successful partnership between house buyers and mortgage consultants hinges on communication. For the mortgage broker, it means sharing all relevant details about home ownership with the client from start to finish. For the client, it means asking the right questions to ensure you’re gaining all the information you can before signing on the dotted line. We’ve put together a list of the five most relevant questions you can ask your mortgage broker.
- What will be the interest rate? This question is an important one, and the answer depends on a number of factors. It isn’t so straightforward, however. The mortgage broker’s job is to get you the lowest interest rate possible, so logically, many of your questions should be centered around these factors. As such, this is an umbrella question that will no doubt contain varied subsequent questions, such as how he or she arrived at the interest rate; how it compares to similar houses on the market; and what can be done to lower it, if anything. Questions about interest will also include questions about the Annual Percentage Rate, or APR. You’ll need to know how much and how often it changes over the course of your loan repayment period. It will include specifics about the rate cap, index, and margin, as well as the possibility of early payoff.
- What will be the monthly payments? Interest rates have a direct impact on monthly payments, but there are other factors. Your mortgage broker should have options to lower monthly payments or get them higher if you’d like to pay of the loan quicker. Answers will include the down payment amount, additional fees, and the type of mortgage options presented (below). It will also include any mortgage insurance, which kicks in under a certain down payment depending on the loan.
- What type of mortgage is it? There are many types of loans, and these branch into different subcategories as you get more intricate. You will need to know the pros and cons of fixed rate mortgages versus adjustable rate mortgages, government-insured federal loans versus conventional loans, and . Further, there are Federal Housing Authority (FHA) Loans, Rural Housing Service (RHS), Veteran Administration (VA), and United States Department of Agriculture (USDA) Loans. You can effectively add “what is a(n)” to each of these listed items and your mortgage broker should be able to provide you with a thorough accounting of the benefits as well as the drawbacks of each.
- What are the additional costs? As you may have gathered by now, loan repayment isn’t as cut and dry as the principle and the interest paid over thirty years. There are often extra costs involved in home buying, including the price of the appraisal, the lender’s title fee, escrow, and any taxes. The latter depends on your location, as different states impose different property taxes. You must also consider closing fees, or ‘points’ that are due at closing. These are not included in loan repayment and must often come out of pocket, but many shrewd mortgage brokers can negotiate zero closing costs where applicable. Also, many loans require mortgage insurance payments until you reach a certain point, when the loan-to-value reaches a favorable ratio.
- What are the additional costs? Again, this is a broad question that encapsulates a number of related questions. To remove some of the stress of the process, you should find out upfront how long the process should take, what documentation you’ll need over the course of application (e.g. bank statements, credit reports), and generally what to expect as things move along. That way you won’t be biting your nails waiting by the phone, as your broker will have explained all this, and you can concentrate on making sure the more important items are in order.
There you have it, the five most important questions to ask your mortgage broker, as well as their sub- questions you’ll want to keep in mind when you visit the office. If a mortgage broker fails to provide clear answers to these, we recommend finding another, more knowledgeable broker at another agency. Good luck!