Home sales slowed down in the second quarter of 2018, but not for first-time home buyers. This population is now responsible for the majority of mortgages as of 2018. 2018 also saw the most first-time homeowner purchases since 2005.
Purchasing a home is a complex transaction. There are many players involved from a mortgage broker to realtors which ideally make the transaction easier. But, not all first-time home buyers find the best team players to have in their corner.
This is understandable considering the vast amount of knowledge, documentation, and mortgage broker options that are needed to find success. Not all mortgage brokers are created equally, so it's essential to know how to find the best one for you.
Getting a mortgage doesn't need to be a headache. With the right mortgage broker and lender to guide you through each step of the process, you'll begin to feel more confident in purchasing the home of your dreams. You should also feel more financially educated by simply working side-by-side with an expert who is willing to show you the ropes and explain the process in detail.
So, how do you know if you've found the right mortgage broker? Read on to find out 7 essential questions to ask a mortgage broker.
7 Questions to Determine if a Mortgage Broker is the Right Choice
Purchasing a home is likely the biggest investment you'll ever take on. It's a long-term investment meaning you'll have a long-term relationship with your mortgage company.
Getting a mortgage is much more complex than speaking to a lender and signing the dotted line. It involves many steps, documents, and decisions before receiving a mortgage approval. Getting pre-approved for a mortgage can certainly help with this process, but it's essential to feel comfortable with a mortgage broker before allowing them to do a hard pull of your credit score.
This makes shopping around for a mortgage broker vital before even beginning to look at homes. Looking at homes has a way of getting you excited, sometimes to the point of making impulsive decisions. This is completely understandable, but having a mortgage broker you trust in your corner before looking at homes can make you feel more secure overall.
Houses don't tend to stay on the market for long, so then home buyers scramble to get approved for a mortgage without doing their research. They may even put an offer in on a house before they speak with a mortgage lender.
But, did you know that many home transactions fall through because of financing? Many home buyers assume that since they have a down payment and good credit that the mortgage process will be a cinch. But, they don't take into account the time it takes to find a reputable mortgage broker, potential loan options, or the time it takes to get approved.
Explore the following questions to ask a mortgage broker before committing to their company. By using these questions as a guide, you'll be able to better understand the mortgage process, the mortgage broker, and the company.
1. What's Your Availability Like?
In a seller's market, a mortgage broker's availability is crucial when putting offers in on a home. Some homes are only on the market for a matter of hours before multiple offers come in. Strong offers require that your mortgage lender is available to write a pre-approval.
A pre-approval letter signals to the seller that you are serious and that you are capable of purchasing the home. It will tell the seller exactly what you can afford and the type of loan you intend to secure. Pre-approval letters can be general, but they have much more impact when they are created for a specific offer on a certain home.
Before committing to a mortgage broker, ask them what their availability is like. Are they available from 9 to 5? Do they answer calls after hours in the event you find the home of your dreams?
A mortgage broker should also respond to your questions in a timely manner. When shopping around for a mortgage broker, make note of how fast they respond to your questions and concerns. While mortgage brokers can be very busy people, they also need to be at the top of their game to ensure you don't miss out on the home of your dreams.
2. What Are the Total Costs I Should Expect?
Many costs go into purchasing a home. Some first-time home buyers are surprised to learn that it isn't as straightforward as determining a loan amount, monthly payment, and insurance.
The main priority of a mortgage broker is to determine if you can actually afford a home. So, the mortgage lenders will include a variety of cost factors to ensure that you understand the total costs involved.
Some lenders also charge additional fees. Make sure to ask what a lender's fees are during the pre-approval process. This way you won't be surprised by the final total when the mortgage broker writes up the final loan amount and costs.
Some fees a lender may charge are for interest lock-in rates, origination fees, and underwriting fees. You should also ask if there are any prepayment penalty fees in case you want to pay the loan off earlier or in larger amounts.
Other closing costs your mortgage lender will include are homeowners insurance, appraisal, inspection, and taxes. Even though these are not charges, they are required to be paid at closing.
3. What Amount Do I Qualify for?
Mortgage brokers calculate the loan amount you qualify for based on several factors. One such factor is your income. Even though you may have a great salary, your debt-to-income ratio will also factor into how much you qualify for.
Your credit score and employment history will also factor into what you qualify for.
Mortgage brokers typically use the 28/36 rule when determining loan amounts. Ideally, mortgage brokers want a candidate to spend less than 28% of their gross income on housing expenses, and no more than 36% on housing expenses and other debts such as student loan payments.
Using this rule poses less of a risk to the mortgage broker as well as you to prevent foreclosure.
4. What Will the Interest Rate and APR Be?
Interest rates are primarily determined by your credit score. However, your down payment, loan and property type will also factor into your interest rate. One element of interest rates that's completely out of your control is the daily fluctuation of interest rates based on the stock market, economy, and the government.
Your Annual Percentage Rate will include the interest rate as well as any lender and third party fees. It will not include property taxes, insurance or per-diem interest. The APR will truly determine which mortgage lender is charging you less, apples to apples. The lower this rate, the better since it can add up to a significant amount after paying your mortgage for 15 to 30 years.
5. What Should I Avoid Doing While My Loan is Processing?
Ask your lender what things you should avoid doing while your loan is being finalized. Many people are unaware that certain decisions should not be made during the loan process. For example, you should not quit your job during the loan process.
You should also avoid taking out any other loans during this time as it will change your debt-to-income ratio.
6. What Mortgage Loan Would You Recommend for Me?
There are many different types of mortgage loans. A mortgage broker should be able to guide you in making the best long-term financial decision for you. The loan your broker recommends to you will weigh heavily on your financial goals, potential interest rates, and desired monthly payment.
For example, if you're looking to pay off a home in 15 years then your monthly payment will be significantly higher. However, if you can afford to do this then your mortgage broker may recommend taking this option as it typically also grants you a lower interest rate.
7. What Does Your Application Process Entail?
Applying for a mortgage requires many forms of documentation. First, you'll need to provide your lender with income statements, identification, and bank statements. They will also need to pull a credit report to see your credit history.
You'll also need to provide them with your tax returns, gift letters (if applicable), and two-year rental history. Based on your unique financial situation, you may also need to provide additional documentation.
Finding the Best Mortgage Broker for You
Just like purchasing a home shouldn't be a rushed decision, neither should finding the right mortgage broker. Beyond the technical knowledge a mortgage broker has, they should also be friendly, professional, and excel at their job. They should have your best interests in mind and guide you in the process of making financially sound decisions.
Remember, a mortgage broker is an expert in their field. They have likely completed hundreds of mortgage loans and should know exactly what they're doing. The right mortgage broker will be able to use this knowledge to your advantage and be someone you can count on throughout the home buying process.