Choosing the right mortgage broker is essential to get a number of competitive mortgage products to choose from. You will find several brokers in your city or even in your locality. Here are a few things you should discuss with your broker to determine whether or not he is the right one for you.
A well experienced mortgage broker will not suggest loans without carefully assessing your requirements. A lot of factors like the type of interest rates, the term of the loan etc need to be considered to choose the right type of loan. Ask your broker to explain different types of loans such as fixed-rate loans, adjustable-rate loans, interest-only loans and negative-amortization loans before you decide what is best for you.
The annual percentage rate determines the costs you incur over the length of your loan. The APR is generally higher than the interest rate as it includes loan transaction costs and fees along with the interest charged.
Apart from the brokerage fee, you will also have to pay towards third party costs. This include charges for property appraisal, credit report, lender’s title policy, pest inspection reports, recording fees, taxes and escrow(if applicable). Make sure that you have a clear idea about each of these costs and clarify any doubts that you have with the broker in advance. If you feel that you are being unfairly charged for a service or forced to take out an insurance, make sure you question these aspects.
As per the federal law, a genuine lender will give you an estimate of these fees and charges in the form of a GFE or a Good Faith Estimate within three days from the date of application. If he fails to do so or does not guarantee his estimate, you should look for another lender.
Prepayment penalties are no longer allowed by all the states in the U.S. So, ask your mortgage broker if there are any prepayment fees charged by the lenders. If the state allows such charges and you wish to clear the loan before the end of term, check whether the loan comes with a pre-payment penalty. It is best to steer clear of mortgages that come with such a penalty, as they do not allow you the flexibility to become debt-free faster.
In case of a soft prepayment penalty, you will have to pay an amount equivalent to six months of interest when you refinance and nothing if you are selling the house. In hard prepayment penalty, you will have to pay a penalty for a certain period of time whether you sell the property or refinance it. To avoid a loss in the future, accept the prepayment penalty clause only if you are sure to stay in the property till you clear the mortgage.
Apart from the above important questions, ask your mortgage broker about the time required for loan transaction. A broker who promises an exact time for funding cannot be trusted as the date or time for releasing the funds is totally decided by the lender.