After all those comparisons and calculations, you’ve finally set up a meeting with a mortgage professional. Maybe you’re a little nervous. It’s only normal. But mortgage pros are used to dealing with people, and the good ones will always answer your questions.
Still, you need to make sure you ask the right questions. Setting clear expectations and communicating effectively with your broker can simplify the entire process. It will also help you get the best deal possible.
Here are the key questions you should ask.
- What Type of Loan Would You Recommend Me?
You may think you know exactly what type of loan you need. But listen to what your broker has to say first—you may discover a better offer.
Usually, the standard options include:
- Fixed-rate loans – the interest rate stays the same throughout the mortgage.
- Adjustable-rate loans – the interest rate may fluctuate depending on market conditions.
- Interest-only loans – you pay only interest, with the principal deferred to a lump-sum payment at a later date.
When it comes to mortgages, there’s no one-size-fits-all solution. A good mortgage professional will try to understand your situation before recommending the best type of loan for you.
- What Is the Interest Rate?
The interest rate is one of the two key rates that reflect the cost of your loan. With a fixed-rate loan, you don’t have to worry about changing interest rates. Together with the principal balance, the interest rate will determine your monthly payments.
An attractive interest rate is a good sign that you’ve come across a good loan. That said, you have to weigh in the other fees and costs, which takes us to the next question.
- What Is the Annual Percentage Rate (APR)?
The APR is the other important rate you need to be aware of. It includes the interest rate plus broker fees, discount points, and other mortgage costs. Who determines the APR? The lender.
Brokers get up-to-date APR estimations from the lenders they represent. Some brokers calculate the APR on their own. Either way, you may get exact numbers only after your application has been reviewed.
- What Are the Pros and Cons of the Minimal Down Payment?
For some types of loans, you may get away with paying less than the standard 20% down payment. For example, down payments for Federal Housing Administration (FHA) loans can be as little as 3.5% if you have a credit score above 580.
However, some of the downsides of lower-than-average down payments include higher monthly payments in the beginning as well as higher closing costs. Your mortgage professional should explain to you the pros and cons of a low down payment.
If you don’t understand all the implications, ask him or her to clarify them. This point is very important, as a small down payment can be more costly than it looks.
- What Can You Tell Me About Mortgage Points?
Many lenders will let you buy down the interest rate to lower your monthly payments. In other words, you pay interest upfront through mortgage points or discount points. The whole idea is to break even by recovering point costs and saving money on payments every month.
For example, for a $250,000 loan, you may buy a mortgage point at $2,500 per point, which can lower your interest rate by around 0.25%. It may take years before you recover the cost of buying points, though, which is why you want your mortgage broker to explain the potential benefits clearly.
Also, ask your mortgage professional if there are any extra fees associated with mortgage points.
- Can You Explain the Loan Estimate?
Brokers will give you a loan estimate after they review your application. You can also ask for an estimate upfront.
Going a step further, you can ask your lender to help you better understand the different costs involved. In this way, you can discover if some costs are out of proportion in relation to the others.
The loan estimate should give you a clear picture of all the costs associated with your loan. These include:
- All lender fees
- Recording fees
- Taxes
- Appraisal fees
- Credit report fees
- Title policy costs
- What Is the Adjustment Frequency? (For Adjustable Rate Loans Only)
Mortgage professionals cannot calculate the annual percentage rate for an adjustable loan. At best, they can try to approximate it. Also, they can explain a few factors that can help you assess the risks of choosing this type of loan.
These factors include:
- Adjustment frequency – the period before the rate is reset.
- The interest rate cap – the limit on how much the rate can grow.
- The index – calculated based on Treasury securities or regional costs of funds to savings.
- The margin – the percentage lenders add to the index rate.
These factors may sound a bit complicated at first glance, but your mortgage broker can help you understand them.
Put together, these factors can help you decide whether an adjustable loan would be a safe choice for you.
- How Much Is the Prepayment Penalty?
The ideal answer you want to hear here is that there’s no such thing. However, you may still face a prepayment penalty in the first three years or a soft penalty if you try to pay all or part of the principal before the end of the mortgage agreement.
The good news is that some states have banned this penalty, so make sure to check with your broker.
- How Long Will the Entire Process Take?
Lenders may conditionally approve your loan in as little as 72 hours, but then the rest of the process may take up to 60 days. There are many variables at play.
However, if you have a good credit history and all the required documents, you may get your mortgage application approved in a matter of weeks.
Ask your broker for a time estimate and whether he or she anticipates any issues that you can address now, before they cause delays.
Over to You
Your mortgage broker is there to help you make the best decision possible. That’s why you should not hesitate to ask him or her any questions that you believe can help you make an informed choice.
The questions we’ve shared with you can help you estimate your costs, spot any major drawbacks in the mortgage offered you, and better understand the options you have. Use the insight they bring you to explore all your options.
