Most people confuse them, but the two really have different roles to play in the home-buying process. Mortgage lenders are financial institutions, like banks, that can directly lend funds. You have to provide documents, fill out an application, show proof of income and debt information, and wait for their approval for financing. Each lender may offer a different combo of annual percentage rates (APRs) and closing costs, so a borrower may want to shop around before committing to one lender. In that case a mortgage broker can act as an intermediary between the borrower and various lenders in the market. Unlike mortgage brokers, mortgage lenders decide whether you qualify for the loan. If you want to minimize the hassle of going back and forth from one lender to another while determining which loan is the right one for you, contact a good mortgage broker to shop around and get the best deal. Ask your mortgage broker these five important questions to help them find the best deal for you. This kind of insurance shows that this person understands the gravity of their mistakes or the consequences for giving faulty advice. If they ever make a misstep, this insurance kicks in to address civil claims made against them by clients who have been ill affected. This means that if you sue them and win, damages are likely to be collected up to the terms of their insurance limits. This is positive for clients with hundreds of thousands of dollars of mortgage loans hanging in the balance. In the end, the mortgage balance, loan term, and interest rates will determine your monthly payment, so you’ll want to know your exact APR—not a guesstimate. Also, ask your broker to inquire if you’ll be able to pay for points – to lower your interest rate even further. Several lenders and first-time home-buyer programs offer loans at 3 to 5 percent down. Federal Housing Administration (FHA) loans are considered the most affordable mortgage loans because they only charge a 3.5 percent minimum down payment. Similarly, Veterans and military members can opt for VA loans that have low rates and low down payment terms. Remember, a lower down payment means higher monthly payments, so ask your broker to help you find the sweet spot that lets you pay both low upfront costs and manage affordable monthly payments. Similarly, you should also ask who pays the mortgage broker’s fees. In many cases, it is the mortgage lender that you ultimately select, but in other cases the broker might pass their fee directly on to you. Some lenders don’t work with brokers at all, so it’s important to explicitly ask how much a broker’s commission is and who is responsible for paying it. The Consumer Financial Protection Bureau requires that a lender provide a borrower with a Loan Estimate. This document outlines all the necessary information and costs that will be added to the final payment at deal closure. This is where you will see the official break down of all your expenses, but you can also take proactive steps to limit costs that you control—like the cost of home inspection and titling. These services are done by vendors that you can choose, so you have the ability to shop around for the best value. On the other hand, an adjustable-rate mortgage (ARM) means that your monthly payments will be affected by market indexes. These kinds of loans are appealing because typically an ARM’s introductory rate is lower than the going rate on fixed-rate mortgages. When the introductory period of 3, 5, 7, or 10 years ends, however, the rates are adjusted according to the market. Because no one has a financial crystal ball, future monthly payments could drastically change. If market rates increase, your monthly payment will increase too. But, if market rates drop, most ARM lenders stipulate that your payment won’t follow suit. Every mortgage company has a different policy in that regard, so ask your broker to explain the details. It is common for people with an ARM to try to refinance their homes to a fixed-rate mortgage before the introductory rate ends, but that means paying closing costs all over again. In many cases, ARMs are best for people who plan to sell their home before the rate changes. Ask your mortgage broker to help make sense of it all by crunching the numbers over your ideal time-horizon.
