Let’s face it: finding the right home is stressful enough without the matter of finding the right home loan—and that can feel downright overwhelming, even on the best of days. That’s why we have mortgage brokers. As the conduit or ‘middle-man’ between lenders and borrowers, the right mortgage broker can play a key role in identifying the best mortgage type for your needs. For one thing, when it comes to choosing a rate and a lender, they can be a huge help by presenting you with multiple options. But the hands-down greatest things about a mortgage broker is that you can hand them the wheel and let them guide you all the way to closing time. This eliminates a lot of stress for a lot of people.
Yet in spite of the clear advantages of using a mortgage broker, many remain skeptical, asking themselves two perfectly valid questions: “Should I use a mortgage broker?” or “Do I even need a mortgage broker?” Although it may seem like an extra complication that you don’t probably need, or perhaps don’t fully understand, brokers can really help you navigate the many loan choices out there, from term to type. No matter what anyone tells you, that’s a load off.
But—the only way to be sure you’re choosing a mortgage broker who will work to fulfill your needs is to go in well-informed! Whether this is your first mortgage, a refinance, or you’re a seasoned professional, here are 4 questions to ask a mortgage broker:
1. How are you paid?
There’s a lot of confusion around how much a mortgage broker costs, because many will tell you their services are free. But many people worry about hidden fees and transparency, and rightly so. It may be necessary to ask how much commission your mortgage broker makes in order to get the answer you’re looking for: when the sale is finalized, your broker receives a commission. Upon closing, the mortgage broker earns a borrower fee or lender commission of between 0.50% and 2.75% of the total loan amount—depending on their fee structure and whether they’re being paid by the lender or borrower. Asking for a detailed breakdown of how a mortgage broker gets paid can help clarify whether their process and fees fit your budget or not.
2. What type of mortgage should I get?
Although all mortgages share the purpose of helping you acquire a home, not all mortgages are created equal. Any mortgage broker worth their salt will ask questions in order to better understand your financial situation before recommending a mortgage type. For instance, if you want to minimize interest and pay down your mortgage quickly, a 15-year mortgage may suit you, but if you’re planning to sell within a few years, there are likely shorter-term options better suited to your purposes. If you have a lower income and/or credit challenges it might make sense to explore FHA loans. It’s your mortgage broker’s job to match you with a mortgage which addresses both your short and long term goals. If your broker immediately hands you loan options or makes a recommendation without asking about your income, down payment, or future plans, you probably want to keep shopping around.
3. How much will my mortgage cost?
The Consumer Financial Protection Bureau requires that mortgage brokers provide you with an itemized loan estimate so there are no surprises. An estimate requires, at minimum, that you provide your social security number, income, property address, appraisal, and loan amount requested. The more information you provide, the more accurate your estimate will be. An estimate should include your mortgage interest rate, closing costs, taxes and insurance, as well as the estimated monthly payment. When looking over your estimate, pay attention to the interest rate and any other costs charged by the lender, and compare them with the costs of a few other lenders. If the amount does not fit into your budget, never hesitate to ask about other options.
4. Should I make a larger down payment or buy points?
While there is no one-size-fits-all formula here, questioning your mortgage broker can help you understand the pros and cons of your various options, such as buying points, which most people do in order to reduce their interest rate. The more information you give your broker about your future plans (i.e. whether you plan to invest, start a business, or buy a second property), the better they will be able to help you strategize. If you’re not planning on a long-term stay, the amount spent on points will probably outweigh any savings you make on interest. Also worth considering is the fact that borrowers who buy points often end up having to pay a smaller down payment, but most mortgages require private mortgage insurance (PMI) for down payments of less than 20%. FYI, PMI typically costs between 0.5% to 1% of your total loan annually. While many would prefer to avoid these extra costs, if a 20% down payment means using up 100% of your savings, it may be worth exploring these and other options.
Bottom line: going with the wrong mortgage broker could mean higher rates than necessary, the wrong mortgage for your needs, a botched approval, or even a missed closing date. A good broker won’t hesitate to share their credentials and explain all pertinent details in clear and accessible terms. As a rule of thumb, question anything you’re unsure about, and request clarification unapologetically. The only stupid question is the one you don’t ask! And don’t worry about not getting something the first time: there’s less of a chance that wires will get crossed if you’ve had something explained to you twice or more. After all, you’re not the expert—they are. That’s why it’s always best to interview your broker before putting your fate in their hands. With the above questions, you’ll be that much better equipped to find the right broker for your needs.