Getting a mortgage is quite easily one of the largest and single most important financial decisions that you’ll ever make. Before you start shopping around for the home of your dreams, you’re probably going to need a mortgage lender, unless you’re planning to pay for the house in full, and in cash.
Before selecting a mortgage lender and determining which loan is right for your circumstances, it is vitally important ensure that you have all of the information you need to make an informed decision.
Mortgage lenders are professionals or organisations that provide the mortgage loan. They are also responsible for ensuring that you can pay back the money that they lend you. Some mortgage lenders partner with the government to provide programs that help people buy their homes.
Before you begin to apply for your home loan, here is a series of key questions that you need to ask a mortgage lender or broker. Note that mortgage brokers are not the same as mortgage lenders. Brokers are mainly responsible for arranging the loan. They counsel you, process your application and then shop around to find you a mortgage lender. They do not get involved in the actual process of lending you money.
Here are key questions to ask your mortgage broker. The answers to these questions will help you select the lender that is right for your circumstances and help you collect all of the information you need to know before you begin the mortgage application process:
How can I get the best interest rate for my mortgage?
The guidelines are different for every loan. Even if you’ve seen very low mortgage rates advertised, some companies do not openly disclose the true terms of the deal as the law requires. You should find out what the Annual Percentage Rate (APR) is for the loan you’re interested in applying for, what your monthly payment will be and how long the low interest rate will last.
Here are the factors that determine your mortgage interest rate:
- Credit Score: Your credit score is used to predict your level of risk, and how reliable you’ll be in paying off your mortgage loan. It is calculated from your credit report, which shows all your loans and credit cards and payment history on each one.
- Your expected down payment: The amount you’re willing to put down can have a drastic effect on your mortgage rate.
- The total loan amount: If you take out a relatively small loan, the mortgage lender may charge you a higher rate to make a decent profit on the loan.
- Loan term: The term of your loan influences how much you’ll pay. The shorter your loan term, the lower your mortgage rate will be.
- Type of interest rate: The type of interest rate you select can have an impact on your mortgage rate. The two types of mortgage rates are fixed rate mortgages and adjustable rate mortgages.
- Location of your home: The location of your home can influence your mortgage rate. If the housing market is healthy where you’re looking, then a lender is less likely to charge a higher rate.
What fees do I have to pay?
Will I be able to finance those fees into the loan amount? You need to pay a range of one-time fees for services related to the process of funding your mortgage. These fees typically vary from lender to lender, and these lenders can use different terms to describe their fees.
It is important to ensure that you know what each cost includes and when you’ll need to pay. Be sure to find out upfront which fees to expect and which ones are open to negotiation. Lenders are expected to provide a written good-faith estimate of closing costs within 3 days of receiving an application:
- Arrangement or Completion Fee: You can sometimes add this to your mortgage, but this will increase the cost of your mortgage, and you’ll pay a higher interest rate and monthly payments.
- Booking fee: This is a non-refundable fee that is usually paid when you complete the mortgage application. It is not usually refundable even if your mortgage fails to go through.
- Valuation fee: This is what the mortgage lender charges to value your property to ensure it’s worth the amount you wish to borrow.
- Mortgage Account Fee: This fee is what the mortgage lender charges for administrative costs in establishing up, maintaining and closing down your mortgage account.
- Telegraphic Transfer Fee: Also known as CHAPS (Clearing House Automated Payment System), this is a non-refundable fee that pays for your mortgage provider to transfer the money to your solicitor.
- Own Buildings Insurance Fee. Also known as the Freedom of Agency fee, this sometimes applies if you opt for your own buildings insurance, rather than what is offered to you by your mortgage lender.
- Higher Lending Charge. If your mortgage has a high loan-to-value this charge can be made by your lender, and is designed to cover the lender’s increased risk.
- Conveyancing Charge. This is a legal fee that is typically charged by your solicitor or a licensed conveyancer for legal work relating to the mortgage.
- Mortgage Broker Fee. If you get your mortgage through a broker, this is a fee you pay to the broker. Note that some mortgage brokers charge a commission from the lender rather than charging you.
- Early Repayment Charge. This is a fee that can be charged if you pay off your mortgage earlier than agreed.
How long does the entire process take?
There’s no definitive time you can expect to wait before your mortgage is approved. This will depend on the mortgage lender as well as the loan you’re applying for. Generally, the process from application to funding usually takes between 30 and 45 days.
What type of information do I need to provide to get the best loan for me?
In order t determine the best loan for you, mortgage lenders will typically require the following information:
- Proof of income.
- Employment history and verification.
- Credit score.
- Monthly expenses.
- Down payment.
- Complete list of your debts: credit cards, personal loans, etc.
- List of assets.
- Short-term and long-term goals and objectives.
Can I refinance my mortgage if I don’t have equity in my home?
Most mortgage lenders typically require you to have at least 20% equity in your home before they’ll approve a refinance. However, the US government has implemented the Home Affordable Refinance Program (HARP) which makes it possible to refinance your mortgage if you don’t have equity in your home, or even have negative equity.