Taking out a home loan is one of the biggest financial decisions you’ll make. Choosing the wrong loan term or not knowing the annual percentage rate (APR) can make the entire process stressful and exhausting. Having a committed broker ready to guide you can make a world of difference.
Here are five questions you should ask your mortgage broker to make an informed decision:
1. What are the Credit Score Requirements?
Your credit score is one of the first things lenders analyse when determining the loan amount and interest rate. It is a three-digit number indicating your trustworthiness and the likelihood of making timely payments.
A credit score typically ranges between 300 and 850, and lenders have varying requirements. For conventional loans, a credit score of 620 or higher is acceptable. However, some lenders may offer loans to borrowers with scores as low as 500.
Discuss credit score requirements with your broker in detail and compare different lenders to find the one that best suits your credit history.
2. Which Type of Mortgage is Suitable for Me?
Next, ask your mortgage broker to explain the terms and conditions of different mortgage types and recommend the most suitable one for you. For instance, a fixed-rate mortgage comes with a fixed interest rate throughout the loan period. Most borrowers prefer this due to its predictability.
In comparison, adjustable-rate mortgages (ARMs) come with varying interest rates. Lastly, with an interest-only mortgage, you only have to pay the interest each month and repay the principal capital at the end of the loan term.
3. What Will Be My Monthly Payment?
A qualified broker will also walk you through the terms and conditions of mortgage repayment. Most brokers recommend using a home loan calculator, where you enter your borrowing amount, interest rate, repayment frequency, and any extra repayments to obtain a near-perfect monthly payment estimate.
4. How Much Down Payment Do I Need?
Mortgage down payments don’t follow a one-size-fits-all approach. Conventional mortgage lenders typically require 20% of the total income as the down payment. This is especially true if you wish to avoid the Private Mortgage Insurance (PMI), a monthly insurance premium required if you put down less than 20% as your down payment.
In comparison, government-backed loans accept considerably lower down payments, such as 3% or 5%.
5. What is my APR?
Interest rate is pretty straightforward. It is the percentage of the loan amount a borrower pays to a lender. But what about additional costs? This is where Annual Percentage Rate (APR) comes in. It includes all kinds of fees and costs associated with taking out a home loan, such as:
- Mortgage insurance
- Broker fees
- Prepaid interest
- Document preparation fees
- Administration fees
- Loan origination fees
- Closing costs
- Underwriting fees
- Appraisal fees
APR is also represented in percentage and is always equal to or higher than the interest rate. A qualified mortgage broker will break down the APR in an easy-to-understand manner, providing you with financial clarity and confidence moving forward.
