Everyone wants to be a homeowner, but buying a house is not that easy. Nowadays the houses cost too much money, and unless you have a successful business or inherit a lot of money, then you have to find other ways to get the needed cash. The easiest way to get some extra money and buy the home of your dreams is to take a mortgage. People use mortgages and loans to buy things they need or to be able to afford a vacation or just furnish their new home. However, before you take out the loan, you need to talk to your broker and ask them some questions.
The broker is the person who is going to help you throughout the whole process. They will be the middle man between you and the place you want to get money from. They can help you and advise you about payments, rates and everything else you need to know. Some people decide not to use a broker when they get a loan, however, that move is really risky if you are new to this.
With the help of this guide, you can prepare yourself for your meeting with the broker. We are going to give you some tips on what you should ask them and what are the most important things you should ask before starting the procedure of taking a mortgage. Don’t feel shy about asking anything else that comes to your mind because, at the end of the day, you need to be well informed when you are taking a big step like this.
How much down payment is needed?
This is the first question you should think about. You probably have some money on the side and you want to invest in something good. Different lenders require different down payments, so talk to your broker about that. Most places need about 20% of the sum, but depending on how big of a loan you are trying to get, that number can go higher or lower. The down payment affects the rate, as well as the possible discount, so take that into consideration as well.
What are the interest and annual percentage rates?
There are a lot of calculations needed to find this out. The interest rate is something that is relatively easy to calculate depending on the loan and the payment rates, however, when it comes to APR, you really need to crunch those numbers with your mortgage broker.
Talk to them about what happens if the mortgage is paid off early and if that is going to affect the interest rate or the APR. There might be some adjustments available, so don’t forget to ask about that as well. Make sure to know the exact number you are going for when it comes to mortgages so that the broker can help you with the rates as well.
How to choose the best loan?
This is one of the first questions you need to ask. Depending on what you need it for and how much money you have for the down payment, there are different types of loans. The mortgage type also depends on the bank or the lender you want to get it from.
As you probably already know the main loan types are:
- Fixed-rate loans
- Adjustable-rate
- Interest-only
- Negative amortization loans
So, depending on your current situation and preferences, the mortgage broker will tell you which type is the best one for you. Even though you can find this information online, Think Plutus suggest that the broker can access your specific situation and give you the best solution depending on your personal needs.
Are there any discounts available?
Depending on your current financial situation and the lender, you might get a better offer or a discount. If you live in the United States, you should know that you can get discount points that are usually about 1% of the amount of money you need. Those points are tax-deductible and experts say that the more points you pay, the smaller the interest rate is going to be.
However, these numbers may vary depending on your country, so make sure you know everything about that and see how fast you are going to be able to get the interest rate down.
What happens if I miss the payment?
This is something that you need to know. You will be required to make a payment every month, so you need to know if there are going to be any penalties if you happen to be late a month or two, or what is going to happen if you miss the payment.
Most lenders have an understanding if you are late only once or twice, but if that happens almost every month, you may need to pay extra fees. Think about all of this before you sign the mortgage documents and make sure that you have a stable income.
Are there any penalties for a pre-payment?
Another question that is vital is what is going to happen if you are able to pre-pay the mortgage. In the past banks were allowed to put these penalties, however, in some countries, pre-payment penalties are not allowed anymore.
What usually happens is that you won’t be allowed to pre-pay the loan in the first 5 years (possibly less, if the amount of money you need is smaller) and that after those 5 years, you should be allowed to close the mortgage without having to pay any extra fees. However, your broker will give you more details about this and you should not forget to ask this question, even if you don’t expect to be able to close the loan earlier than planned.
Other questions you may want to ask include:
- How much time is it going to take for the whole process to finish?
- Can this bank/lender approve in-house loans?
- What is a loan-rate lock and can I get it?
- What documents do I need?
- What are all the costs?
Write down all the questions you want to ask before you have the meeting with the broker. While you are researching the questions, you can write down notes about anything you don’t understand. If there is anything else you want to know, you should not stick to these questions only.
At the end of the day, you want to get the best possible offer and you want to learn how to pay the loan back without too much trouble. Don’t ever use payment rates that are higher than half of your monthly income and make sure you have a backup plan in case your income changes. After the meeting, if you think of any other questions, you should call the broker and schedule another visit.
Nicola Holder