- February 19, 2018
- Posted by: steve
- Categories: mortgage advice, mortgage articles
Thinking about buying a house? Whether you are asking about experience or about your mortgage, here are 7 essential questions you need to ask your loan broker.
Mortgage lending may seem complicated, especially if you have zero experience when it comes to loans.
Some loans come with fine print, strict fines, and payment
But don’t despair.
Read on to find out the 7 essential questions you need to ask your loan broker.
Before even considering a mortgage loan, you need to find a reputable loan broker who can guide you through the process. Your loan broker must be trustworthy, experienced, and capable of answering the questions below directly.
When you ask the questions in this article, pay attention to the way your loan broker replies. Are the answers straightforward? Does the broker include all the fees openly when asked? Are they impartial, or are they trying hard to get you to accept a certain deal? All these are important considerations, and if you think your broker isn’t looking after your own good, please look elsewhere.
Also, your loan broker should give you answers that are as clear and jargon-free as possible. We cover some essential terminology just below. Anything more technical and the broker might be trying to confuse you.
First of all, what is a mortgage, and why do you need one? Simply put, a mortgage is a loan you take in order to buy a real estate property. When you cannot possibly pay the whole sum up front, you take out a mortgage and repay it in a predetermined set of payments.
Obviously, if you cannot pay back your mortgage, the bank can take back the property!
Please note that the mortgages available to you are affected by your credit score and overall financial status.
Now, a mortgage’s “ID” is made up by its interest rate, the total mortgage balance and the loan term.
Interest is the cost of borrowing money. It’s usually expressed as a percentage and paid annually. Without interest, there would be no incentive for banks to loan money. Some loans have a fixed interest rate, while others have variable rates that change during the course of repayment.
Total Mortgage Balance
This refers to the money the borrower still owns the lender. It starts at 100% and gets lower as the mortgage is repaid month by month. When the total mortgage balance reaches zero, the mortgage is considered fully paid.
This is the predetermined time a borrower has to repay the mortgage. Loan terms are calculated either in months or years. The lender expects the mortgage to be repaid in full by the end of the loan term.
If a mortgage is not repaid in full by the end of the loan term, the lender may claim back the property, or impose penalty fees on the borrower.
Typical loan terms range from 10 to 30 years. Shorter or longer terms are untypical but not unheard of.
Loan-To-Value Ratio (LTV)
This term expresses the ratio of a loan to the value of an asset purchased. The higher the LTV ratio, the riskier the loan is for a lender. Depending on the percentage of the LTV, lenders may require you to pay insurance.
There are TONS of different mortgage types, and you can’t hope to research them all by yourself. There are many useful mortgage calculators you can use to get a first glimpse of what to expect.
Since you will be buying a house, look for residential mortgage calculators, plug in your specific details and look all the available options. However, this is the last step you can take without a dependable loan broker.
So, find a loan broker you can trust, and ask them these questions:
1. What is the Interest Rate and Mortgage Payment?
Your broker will find you one or more mortgage loans with interest rates based on the size or cost of the property, and your credit.
In order to get the lowest interest rates, you need to have a good credit score. The worst your score, the highest the interest rate. This is done to safeguard the bank’s interest (no pun intended) in case the borrower defaults.
A loan’s monthly payment will be determined by the aforementioned total mortgage balance and loan term. The longer the term and the smaller the balance, the less a monthly payment will be. Conversely, big loans that must be repaid quickly will have comparably bigger monthly mortgage payments.
A monthly mortgage payment must be affordable and sustainable. Your loan broker must find you a fair deal that will take into account your financial goals.
2. What Fees, Taxes, and Penalties are Associated with that Loan?
When closing a mortgage, you may be asked to pay a “point”, which is a one-time fee. For each “point”, lenders will decrease interest rates by 1%. Some mortgage loans come with zero closing fees, which also involves higher interest rates.
Most mortgage payments already include homeowner’s property taxes. Make sure your lender clarifies whether the quoted price is with or without any associated taxes.
Additionally, some loans allow you to pay off your mortgage early through extra mortgage payments. However, many lenders impose fees for extra payments to account for lost interest. This is an important detail you need to know before taking out a mortgage loan.
3. Is the Mortgage Fix Rate, and If not, can I lock in Interest Rate?
While technically two questions, this is something that’s decided together. Loan rates can go up as the economy fluctuates and this may affect your ability to pay back your mortgage.
Fixed rate loans keep the same rate for the whole loan term, while adjustable-rate mortgages (ARMs) change after a fixed period of time depending on a range of parameters.
Most mortgage loans come with an unfixed interest rate that will add additional balance to the mortgage should the economy change. This is done to protect the bank’s interests, but there are ways around it.
Borrowers may be able to lock their interest rate for a fee. This protects borrowers from changes in the economy and allows for more efficient budgeting. Keep in mind that not all lenders give the option to lock interest rates.
4. What Is the Minimum Down Payment I Have To Pay?
Almost all mortgages require a down payment. Typical down payments range around 20%, but there are exceptions. If you qualify for a loan by the Federal Housing Administration (FHA) and have good credit, you can find loans with down payments as low as 3.5%.
Keep in mind that the lower the down payment, the higher monthly payments will be. There also other ways you can work around the 20% down payment, but most come with costly insurance fees.
5. Do I Have to Pay Mortgage Insurance?
If borrowers pay less than 20% of the total cost as a down payment, they may be required to pay mortgage insurance until their loan to value ratio (LTV) falls below 80%. Mortgage insurance is generally expensive, costing up to 0.1% each month!
Mortgage insurance may seem unfair, but it’s there to protect banks from losses due to a mortgage loan defaulting.
There are many different types of mortgage insurance, with the most common being private mortgage insurance (PMI).
6. How Do I Qualify?
Different lenders have different qualifying conditions. These take into account income, credit status, down payment and even employment specifics.
All lenders require you to have enough funds for the down payment and all associated closing costs. Many lenders also require proof of income and proof of reserves. This means that you need to prove to the bank that you have enough money to pay the mortgage for up to six months from taking out the loan.
7. Is This The Best Mortgage Deal You Have For Me?
Possibly the most important question in our list. Asking for a better deal will get the loan broker to search for different loan options that suit your needs.
Good loan brokers will also help you improve your credit score so you can get better deals, and work with you in determining what’s the best course of action for your mortgage.
It’s important to compare your options and consider details carefully before committing to one mortgage. Most lenders offer multiple types of loans, and depending on your situation, you probably qualify for more than one of them.
A Loan Broker You Can Trust
Mortgage loans are neither simple nor straightforward.
With so many considerations, including down payment, insurance, adjustable rates, fees, taxes and more, it’s important to get your mortgage loan right!
That is why finding a reputable loan broker is the most crucial step in buying a house.
Looking to buy property in Florida? Contact New Florida Mortgage, a leading loan broker in the state of Florida, capable of finding you the best mortgage deals!