65% of American homeowners have a mortgage. If you're considering buying property, it's likely that you'll also have to get a home loan — particularly if you're a first-home buyer.
Working with a mortgage broker can ensure you get the best possible deal. But it can be difficult to know just what you should ask to make the best possible decision. In this article, you'll learn the top mortgage questions you should ask to be as prepared and knowledgeable as possible.
Here are the top 10 mortgage questions you should ask your mortgage broker:
1. How Does the Application Process Work?
While many lenders offer online services so you can track how your loan is progressing, not all brokers are there yet. Here are a few things you'll want to cover when you're finding out how the application process works:
- What's the average time to closing?
- Are there any lender fees or third-party fees?
- What's the timeline and cost to lock in this mortgage rate?
- Are there any loan product requirements in regards to the down payment, debt-to-income ratio or credit score?
- Do you have an online platform for uploading documents?
- Which documents do I need for each part of the process, and what are the deadlines for submittal?
- Which companies do you use for the services? (These include escrow, title insurance, appraisal etc. and can you shop around).
When you're comparing lenders, look for one that has the simplest application process possible. Applying for a mortgage can be stressful, and ideally, your broker should be making this as easy as they can.
2. How Experienced Are You and Your Team?
Whether you're refinancing or this is your first mortgage, it helps to have someone who can help you make sense of the sometimes confusing underwriting process. Here are some things to consider when you're determining how experienced your mortgage broker is:
- How prompt and accessible are they?
- Do they work alone or do they have a team?
- Who will you be speaking with most often?
- How long have they been working as a mortgage broker?
- Do they have references you can speak to? Testimonials you can read?
- Are they happy with your preferred means of communication? (Email, text, online chat, phone etc)
- Do they give you clear, straightforward answers?
Purchasing or refinancing a mortgage is a big deal, and can have a massive impact on your future financial health. It's imperative that you're working with an experienced broker who has plenty of experience with similar situations.
3. Which Type of Loan Should I have?
A reputable mortgage broker will spend plenty of time getting to know you and your financial situation before giving you loan options.
Choose a broker that gets lots of information from you before they begin suggesting loan types. Here are some of the options you may want to ask about:
Adjustable Rate Mortgages
These home loans vary as interest rates rise and fall. If interest rates are low, these can be useful for getting your foot in the door of your first home, but you also take a risk that they may rise- increasing your mortgage payments each month.
Ideally, you'll get an adjustable rate mortgage with a cap on the limit of how high it can rise.
Fixed Rate Mortgages
These mortgages are exactly what they sound like- fixed-rate. You'll lock in the interest rate when you get your mortgage, which means you won't risk paying more if interest rates rise.
These interest rates will typically be a little higher than an adjustable rate mortgage since the bank is taking the risk in the event that interest rates increase.
If you get an interest-only mortgage, it literally means that you're only ever paying the interest on your loan and not the balance. This means that no matter how many payments you make, you'll always owe the same on your mortgage.
These are usually only interest-only for a limited time period, say five or ten years; after which the total amount due is amortized over the remaining period. For example- you obtain a 30yr fixed interest-only mortgage, you will pay interest-only for 10 years and then the mortgage will convert into a 20yr fixed.
Negative Amortization Mortgages
This type of loan means that your repayments don't keep up with your interest costs. This means that the balance of your mortgage will rise. Eventually, you'll need to pay off the balance of the loan. This could be done through refinancing, making a balloon payment, or making larger payments in the future.
A good mortgage broker will cover all of the above options with you and will give you advice based on your current and future needs.
4. What Rate Do I Qualify For?
Many people are unaware that their credit score has a massive impact on the interest rate they'll qualify for. While current mortgage rates fluctuate each day, it makes more sense to find a broker who can get the exact rates based on your credit score, down payment and the amount you'd like to borrow.
Ideally, your mortgage broker will be comparison shopping for you, so you can get the best rate from a variety of lenders. This will save you a massive amount of time and ensure you get a great deal.
5. Will I Qualify for a Mortgage?
Bad credit? You're not alone. Nearly 68 million Americans have a score under 601, which is considered poor credit.
However, it may not be as bad as you think. Credit report mistakes are common, so you may simply need to dispute any issues that you're not responsible for.
If your credit score has suffered from your own past actions, a mortgage broker can still help- as long as you're transparent. Federal Housing Administration loans are an option if you have a small down payment and/or a low credit score.
There are also other options, so be sure to talk to your broker about your credit score.
6. What Is My Minimum down Payment?
Each loan product has a different loan payment requirement. Traditionally, most mortgages have required a downpayment of at least 20%. But if you can get an FHA loan or another loan product, this can fall as low as 3% and can even be 0% with USDA.
Keep in mind that if you have less than 20% saved, you'll need to pay mortgage insurance. Your loan is also likely to be more expensive as well.
7. Will I Have Prepayment Penalties?
If you have some extra cash, putting it on your mortgage can be a smart move. After all, the sooner you've paid off your mortgage principal, the better...right?
Unfortunately, some mortgages restrict this activity and charge a fee for making extra mortgage payments. If you're hoping to ramp up your payments once the kids move out, be sure to ask if this is possible.
8. What Is the Monthly Repayment?
When you're budgeting for a new mortgage, it's important to make sure you can afford the new payments. Don't forget to add taxes and insurance to your calculations. You'll also want to be able to save for short-term goals like a new computer or vacation, and long-term goals like the kids' college funds or retirement.
Your mortgage payments shouldn't be so high that you can't achieve other financial goals. Talk to your broker about how much you will be paying each month, and how this number would be impacted by a larger down payment or lower interest rate.
9. How Does Pre Approval and Closing Work?
You'll need to make sure that your mortgage broker's timeline works with your goals. Ask when they'll be checking your credit score, and make sure you don't open or close any accounts or apply for credit.
Ask which information they'll need for pre approval and how long that pre approval will be valid. This will usually be 30 days. Now is also a good time to find out about how the closing process works. Where does it take place? Do they do it in-house, or will you need to go to an Escrow office? Can this be done online or even at your home?
10. What Fees Will I Pay at Closing?
Fees will apply no matter which loan product you choose. These include closing costs, the cost to write the loan, and origination fees as well as property taxes and property hazard insurance (this is a different type of insurance than PMI). You'll also have to consider your interest rate and whether you can lower this.
For example, interest rates are determined by the Federal Reserve. 1% of your loan amount is equal to one point, and if you pay points at closing, you can lower your interest rate.
Ask your broker to outline all fees you can expect to pay during the process and at closing. They should give you the Closing Disclosure and Loan Estimate, and you have three business days to ask questions and review your Closing Disclosure before closing on your mortgage.
Any Further Mortgage Questions?
Getting a mortgage can feel like a complicated process, but by being informed and knowing the right mortgage questions to ask, you'll be taking a step in the right direction.
If you'd like to learn more about what you can expect for your specific situation, we can help. Contact us today to get your application process started, and you'll receive prompt, tailored service and answers to all of your questions.