When you want to take a loan to purchase a house or to maintain it, it is called a mortgage. Owning a home is a goal for many people. While some may have the financial ability to buy it with no loans, others may need to take a loan to be able to buy it.
Though this seems like a simple process, one needs to be careful when choosing a mortgage broker. They are usually a representative of a bank or financial institution. They sometimes also represent private lenders and help the borrowers to look around for appropriate ones. A commission fee is paid to the broker which is a percentage of your total mortgage amount.
It is very important to understand how the broker operates before finalizing which one to work with. When you ask a few questions ahead of time, the mortgage process and purchase of your home become an easier process for you. You are much more prepared for how things will go in the course of the loan term. Mentioned below are 6 questions you should ask your broker before finalizing your mortgage.
What Kind Of Loan Should You Take?
Before a lender gives you a loan, it is natural that they will want to know your financial status in advance to be able to estimate if you can actually repay the loan amount taken. Ask the broker for advice and gather information on which particular loan type you can get. There are several types of mortgage loans like fixed-rate loans, adjustable loans, and so on. They all have their advantages and disadvantages. Make sure you understand all about them from the lender or broker so you know how each can fit your financial situation. For example in the fixed-rate loan, the interest rate cannot be changed whereas, in an adjustable loan, the interest rate will fluctuate as per the market conditions. By discussing all your options with the lender you will know which best fits you.
How Much Is the Minimum Downpayment Required?
If you are taking a loan, chances are you do not have the required finances needed to purchase the property on cash outright. Therefore, it is important to know what is the basic downpayment needed to take the loan. A downpayment is an initial amount you need to pay when you take a loan. On average it is 20 percent of your total loan amount. Some lenders can even provide loans with very little downpayment but it may have disadvantages like high interest rates. Also, the mortgage insurance on loans with a very low down payment can be high.
Thereby, there could be a situation where you will end up with more closing costs and high monthly payments. Weigh in all the options so you do not have financial burdens while repaying and find it difficult to repay.
What Is The Monthly Payment?
A mortgage loan is not as simple as paying a downpayment and then paying the monthly payments only. There are other costs and aspects involved in it. The first thing to do here is to calculate how much the monthly mortgage amount is. You can even do this by using an online mortgage calculator to know the mortgage amount. Knowing all the costs in advance will help you understand if you can afford the monthly charges as a whole or not.
What Are All The Other Fees?
Apart from that, some lenders may charge an origination fee. This fee is usually charged upfront for processing the loan application. You can also ask if there are any discount points available that can help you reduce your interest rate. Other costs included are lender fees as well as any third-party fee if you have involved one. Ask for a quotation to be able to properly read and go through all fees. These should be mentioned accurately. This is called a Loan Estimate document and should include all your details, estimated value of the property, loan amount, fees included, and your income.
What Are The Documents To Be Signed?
A document is signed between the mortgage lender and you which contains a promissory note. This note is a promise that you will repay the amount taken, the monthly payments, and the length of the loan. The other document that you will sign will include other financial details along with a recourse that the lender can take if you don’t make your payment. The procedure that will be carried out in the scenario of non-payment, the penalties, etc are mentioned in this document. Typically the lender gets to take back the house if you do not make your payments on time. At the same time, if you make all your payments in time, after the end of the loan term when the whole amount is paid, the house is completely transferred to your name.
What Are The Terms Of The Lender?
Start by ensuring that the lender is an ethical source for taking a loan. When it comes to money, there are way too many scammers that one needs to be aware of. Go through their website and check reviews to understand what other people who have used their service have to say. Also, ask the terms of prepayment and penalties from the lender. This will be very vital in the future if you make any arrears with your payments. Ask about the expected turnaround time of receiving the loan after the application process. Recheck for any costs you can incur from the lender, right from getting the loan till the closing of it.
Do Not Limit Yourself
The above mentioned are the most basic questions you need to ask about a mortgage. However, depending on your financial status, there could be even more personalized questions you will need to ask. Make a list of everything you need to know and don't shy away from asking them. The more prepared you are, the smoother the repayment journey will be. Keep a file with all the answers you have received from multiple sources. This way you can reevaluate them at peace and choose one that is best for you.
