Top Questions to Ask a Mortgage Broker

Asking your mortgage broker

Purchasing a home is a major undertaking and getting a mortgage is one of the first steps in making your dream a reality. Mortgages can be complicated and understanding all of the terms and conditions of a home mortgage can be confusing.

We compiled some of the most common questions that new homeowners have about the mortgage process to help you go into your mortgage negotiations fully armed. When shopping for a mortgage these are some of the most important questions you should ask your lender.

What is the interest rate?

Your lender should be able to give you an exact answer as to what the interest rate on your loan will end up being. This rate, combined with your loan amount (and taxes and fees) will determine your monthly payment, which means a lower interest rate results in a lower monthly payment.

There are a number of factors that go into calculating an interest rate. Your credit score, the location of the home, the loan amount and down payment will all factor in to the interest rate you are offered.

In addition, your loan type and loan term will impact your rate. If you are unhappy with the rate, shop your loan around, rates can vary dramatically between providers.

If you credit score is forcing you into higher rates consider waiting a year or so and work hard in that time to improve your score which has a major impact on your rate.

What is my monthly mortgage payment?

One of the most important questions you need to ask is how much money you will be handing over every month. While the exact amount may vary slightly once the loan goes through, your lender should be able to give you a fairly accurate idea of the monthly payment.

Don’t forget to ask if this includes all taxes and insurance costs and if it doesn’t factor those amounts in to get your final monthly costs. It is extremely important that you can easily afford your mortgage payment. Plug your mortgage number into your monthly budget and make sure you have enough left over to cover your monthly bills as well as fund long term goals such as retirement and vacations.

Type of Loan

Understanding the type of loan you are getting is essential. There are basically two types of loan and each one has its strengths and weaknesses.

• Fixed rate: A fixed rate loan keeps your interest rate the same over the entire life of the loan. Loan terms usually range from 10 years up to 30 years. This is probably the most common type of home loan and makes budgeting easy as your payment should stay pretty much the same over the course of the loan.
• Adjustable rate (ARM): An ARM has an interest rate that stays fixed for a certain amount of time and then fluctuates. This can be a good option if you don’t plan on spending much time in your home before selling it. However, rates can change dramatically so make sure you fully understand this loan type. Ask how often rates change and if there are caps on how high or low the interest rate can go.

The type of loan you choose has a major impact on your mortgage so make sure you ask questions about anything you don’t understand and have a complete understanding of your loan before signing on the dotted line.

Loan Term

The loan term is how long you will be paying your mortgage. Typical loan terms are 10,15 and 30 years. Choosing a shorter term may lower your interest rate but you will need to cover a larger payment each month.

Make sure you have a complete understanding of your loan term. While a shorter term means that you own the home quicker, your monthly payment will be higher.

What Fees Are Involved?

There are often fees associated with a mortgage and while many of them are standard and not that large, one fee you should be aware of is “points.”

If your loan includes points that you must pay at closing you need to be aware of them as well as how much they are costing you and the benefit they provide. Every point you pay decreases your interest rate by 1 percent. A point costs 1 percent of your loan amount. As an example, if you have a $100,000 mortgage, one point would cost $1,000.

Are There Prepayment Penalties?

While most mortgages let you pay the loan off early, there are mortgages that will penalize you for prepaying the loan. If you plan on paying down your mortgage early, make sure that your mortgage will not penalize you.

Do You Qualify for This Loan?

While a loan officer may not be able to answer this question until they have gathered a bit more information, they should be able to give you some idea of the underwriting guidelines.

Underwriting guidelines, which are basically the requirements to qualify for the loan, vary by lending company. In many cases your credit score and income must be sufficiently high to qualify for certain loans. Ask about the underwriting guidelines and make sure you can meet them.

What is the Minimum Down Payment?

The required down payment can vary between loan products so make sure you completely understand the required down payment. In the majority of cases you will need to put down 20 percent of the loan amount.

If you get a FHA loan you could possibly only pay 3.5 percent down. Make sure you fully understand the down payment requirements and can easily cover that amount.

Do I Need Mortgage Insurance?

Most loans will require that you carry mortgage insurance if you put down less than 20 percent. Once you have more than 20 percent equity in the home you can drop this coverage. Pricing on mortgage insurance will vary but expect to pay around $100 a month for every $100,000 borrowed.