Your mortgage is one of the largest – and most complicated – loans you’ll ever have. And with typical mortgages being either 15 to 30 year terms, you’ll have to live with your decision for a very long time.
Sure, you can always refinance, but that comes with more hassle, paperwork, and fees. If you take the time to ask your mortgage broker the right questions, you’re more likely to get the right loan for you the first time.
Mortgages are so much more than simple loans. In addition to shopping around for the best interest rates, you’ll want to look into the details. Here are the questions you need to ask your mortgage broker to make sure you’re on the right path. Whether you’re a first-time homebuyer or an experienced buyer, these questions are a great guide.
1. What is the annual percentage rate?
When researching mortgages, you might notice that many quotes give two rates: the interest rate and the annual percentage rate (APR). There’s a reason for that! The interest rate is pretty straightforward – the amount of interest that the loan will accrue over time. But it’s not enough to look only at the interest rate.
The APR is the number you should really be using to compare one loan to another. That’s because the APR takes the interest rate and then adds in the parts the lender hopes you’ll forget about – like the fees embedded within the loan.
Understanding that, it’s easy to see why shopping around is so important. One lender may give a low interest rate, but a much higher APR. Simply put, you’re better off going with the loan that has a lower APR when faced with an either-or decision.
And when looking at the APR, make sure to ask the follow-up question: does the APR include any discount points?
Discount points are extra fees you pay up-front in order to lower your overall interest rate. The answer you want from your mortgage broker is “no.” Buying discount points doesn’t make sense for everyone, so you don’t want your quote to include any up-front when you’re still in the shopping stage.
2. How much down payment do I need?
A good mortgage broker will look for the best loan to fit your unique situation. There are many lenders out there, like SoFi, that are eliminating the old-fashioned requirement of 20% down. Other lenders are following suit, creating mortgages that are more realistic for today’s market. In general, the less you put down, the more you’ll pay in interest and fees like private mortgage insurance.
Take into account the money you have as well as the property you’re looking to buy when considering the ideal down payment amount. For example, you may want to put less down on a property that needs updating or repairs right away so that you have more cash available to pay for those things.
On the flip side, you might get a slightly better rate by putting 15% down and paying a small amount of mortgage insurance than if you put 20% down. It all depends on the structure of various loans. That’s why it’s so important to have your mortgage broker crunch the numbers for different scenarios. You won’t know if you don’t ask!
3. What services can you provide beyond my mortgage?
Many mortgage brokers at traditional banks do one thing: mortgages. That makes them great at their jobs, but it also means you’re on your own for some of the other services you’ll need during the homebuying process.
A good mortgage broker will not only help with your mortgage, but will know the industry well enough to provide you with references to other trusted advisors. Experienced mortgage brokers should be able to help you navigate buying home insurance, getting title services, and even recommend inspectors or repair companies.
A mortgage broker who isn’t willing to be your trusted advisor for the entire process is someone you should skip. There are a lot of great brokers, but at the end of the day, they’re all working with the same mortgage companies. So interview around until you find the person you know you can trust!
4. Do I qualify for any special mortgages or down payment programs?
There are a handful of special down payment assistance programs available at the local, state, and even national level. A good mortgage broker will have an in-depth knowledge of those programs and will help you figure out if you qualify.
Some of them are income-based, but others may be based on the area the property is in. So even if you don’t think you qualify for anything income-based, this is still a question worth asking!
5. Does this loan have any prepayment penalties?
There are some lenders out there who will charge you extra fees if you make extra payments and pay off your mortgage early. It’s often hidden somewhere in the fine-print, and many people don’t even know about prepayment penalties until they’re hit with one.
Make sure your mortgage broker finds you a loan that doesn’t penalize you for paying off the loan early. After all, a company that wants to keep you in debt isn’t a company you want to be paying interest to for the next 30 years.
6. Can I lock the interest rate on this quote?
Many people are surprised to find that mortgage rates can change on a daily basis. Some lenders will allow you to lock down an interest rate for a fixed amount of time while you shop – typically 30 to 60 days. If your broker tells you that there’s a fee for locking the interest rate, it’s a sign that you need to move on.
7. What costs can I expect to pay at closing?
There are a handful of fees that you can expect to pay at closing no matter where you get your mortgage. This includes appraisal fees, title fees, and property taxes. Your mortgage broker should give you an estimate for these fees along with any other fees charged by the mortgage lender for closing the loan.
Sometimes there is an origination fee – a fee to begin the loan – that will also be due at closing. A good mortgage broker will be completely transparent about all the fees, and provide you a detailed breakdown so you can see how they all add up. Since there should be nothing surprising about these fees, you should definitely avoid any broker who tries to side-step this question.
8. Can you meet all my needs as a customer?
A mortgage broker works on commission, which means they should be driven to give you the best customer service. It’s important to be honest up-front about your expectations. Will you want your broker to be available by phone, email, or both? Can you expect your broker to be available if you need assistance on weekends? Can your broker get you a mortgage on the timeline that you need? Will they be reaching out to you directly, or will you be contacted via an associate or secretary? These questions all help lay the groundwork for a positive working relationship.
Ready to buy?
Finding the right mortgage broker is only one piece of the puzzle. Here are the other things you’ll need if you’re ready to buy a home:
- An experienced, trustworthy realtor with good understanding of the local area(s) you’re searching within.
- A budget! There’s nothing worse than finding out you can’t actually afford the house you want. To ensure you’re only looking at houses you can afford, start by defining your budget. If you don’t have a budget established, start today. You can use Quicken or one of the many alternatives to Quicken that are available.
- A credit check. Before you go shopping for houses and mortgages, make sure your credit report is accurate. If you see any red flags, give yourself some extra time to resolve them before getting a mortgage. Doing so may save you thousands in the long run because a better score usually equals a better rate!
