By Francine L. Huff
Top 10 Things to Ask Your Mortgage Broker
Mortgage Credit Problems Columnist
Don't work with just any mortgage broker. Even if you have bad credit and have to search harder for lenders willing to work with you, take the time to interview several candidates to choose a reputable company. Here are 10 questions to ask your mortgage broker.
- Which loan is right for me? Whether you have good or bad credit, it's important that any broker you choose offers mortgage loan options that are right for your situation. Brokers generally have access to loan products from a variety of lenders. It's important to compare lenders to get the best deal. Whether you want to find bad credit refinancing or purchase a home, it's important to have a broker who will work on your behalf. If you get the sense that a mortgage broker or lender is trying to steer you into a cookie cutter loan or doesn't really understand the business, run, don't walk, away.
- What is the real interest rate on the loan? Ask for the annual percentage rate (APR), which includes the interest rate and other fees, such as closing costs, points, and the margin. Home loans for people with bad credit will have higher interest rates so make sure you are being given accurate quotes based upon your credit score. If you are being offered an adjustable rate mortgage (ARM), find out what the rate cap is, which index is used to figure out the interest rate, and how often rates can be adjusted.
- What are the costs for getting a loan? Closing costs may include fees for an appraisal, title search, survey, document preparation, recording fees, and taxes. Bad credit refinance loans will also require you to pay closing costs.
- What are points and origination fees? Each point is worth 1% of the total loan amount. If you have bad credit, paying points can lower the interest rate on a mortgage refinancing or purchase you otherwise couldn't afford. An origination fee is money you would pay to set up your new loan when refinancing. Origination fees can range from 1% to around 5%. Ask your broker if he or she can eliminate or reduce this fee.
- How do you get paid? Any mortgage broker you work with should be able to explain upfront how they get paid. Mortgage brokers don't actually make loans, but instead work with you to find the right lender. If you have bad credit, it's important to find a broker who can match you with mortgage lenders who work with such clients. Mortgage brokers receive commissions and may be paid by customers and lenders. The yield spread premium is a commission that your broker might receive from a lender to mark up the interest rate of your loan.
- Will you provide an estimate of closing costs? You should receive a Good Faith Estimate (GFE) of closing costs three business days after applying for a loan. However, If lenders know that they have to compete for your business, they may be more will to supply this information before you actually apply.
- How long will it take to process a loan? It could take 45 to 60 days, and even longer. Your mortgage broker should include a closing date when writing a contract for a mortgage loan. He or she should be able to explain the loan process, potential problems that can occur, and a timetable for when the money will actually be available.
- What documents will I need to apply for a loan? The days of no-document mortgage loans have ended, with bad credit or not. You'll need to provide proof of income and assets with documents such as tax returns, pay stubs, W-2 forms, cancelled checks, and investment statements. If you've had credit problems in the past, it will be even more important to show a recent, stable financial history.
- Will you lock in my interest rate? Mortgage rates can fluctuate during the time your loan is being processed. Find out if there is a fee to lock in a rate and how long it will last.
- Is there a fee for paying off a loan early? This could be important if you later decide to sell or refinance your home. Find out how long any penalty period would last and if it would apply if you refinanced through the same mortgage lender.
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Get all the facts before choosing a mortgage broker to work with. Refinancing or buying a home is a big commitment and you want to know you can trust whoever you hire.