mortgage advice

Since the journey to homeownership can be complex, it is crucial to consult with a mortgage advisor early in the process. Here are some tips to help you get the mortgage advice (and advisor) that will work best for your financial needs.

This is part of our client education series, for any of our lung time mortgage professionals reading this you can share this article with some of your clients to help them better understand these topics.

What is the best mortgage advice to start with?

While buying a home should be an exciting experience, it can often be stressful and overwhelming. What type of home should you buy? Where should you buy? How long do you plan to reside there? And which type of mortgage will best suit your financial situation?

To help minimize your stress, here are the basic stop for first-time buyers:

• Give your credit a review.
• Figure out your budget.
• Begin saving sooner than later.
• Understand the different mortgage options.
• Try to get pre-approved.
• Evaluate your closing documents.

Mortgage tips

When shopping for a home, it is critical that you know what you are getting yourself into. To help you stay organized and to give you a better understanding of the mortgage process, here is a breakdown of good mortgage tips for first-time buyers:

• Review your credit. Lenders scrutinize your credit history when deciding if they will offer you a mortgage—as well as the interest rate on the home loan. For this reason, it is important to review your credit, which you can do by getting a free credit report from either of the major credit bureaus (Equifax, TransUnion, and Experian). To get your credit score, you can go through your bank or credit card company. To improve your score, you can clear up any delinquencies or pay down high balances.
• Figure out your budget. When buying your first home, you will want to determine your budget ahead of time to gain an idea of how much money you can put down on a home and what type of home you can afford, i.e., down payment. In addition to principal and interest payments, you will have to pay home insurance, property taxes, and potentially private mortgage insurance. To give you a better picture, you can use a mortgage calculator.
• Save sooner than later. If you start saving early, you will likely have more money to put toward a down payment. This means you will have to borrow less, making your monthly mortgage payments less. Plus, in a tight real estate market, increasing your down payment will make you a more attractive buyer.
• Understand mortgage options. It is important to know the different mortgages available to you—and the different loan structures—which will likely meet your minimum requirements. For instance, the three types of government-backed loans come from the Federal Housing Authority (FHA), Veterans Affairs (VA), and the USDA. Conventional loans, many of which are sold to Freddie Mac and Fannie Mae, offer different loan structures for term length and fixed- versus adjustable rate.
• Pre-approval. Getting pre-approval (or pre-qualification) from your lender shows that you are intent as a buyer, as well as provides a benchmark idea of how much house you will be able to afford. For pre-approval, you can visit a bank in person, call or visit online. You will have to give your financial information and basic income, as well as undergo a credit check.
• Review closing documents. You will be sent a Closing Disclosure three days before you close on your property, breaking down the loan terms and closing costs. It is important at this final stage to review and compare it to your loan estimate, ensuring it is all accurate.

Remember: review your credit, determine your budget, start saving, know the different types of mortgages, get pre-approval, and review the closing documents. Following these steps will make it easier for you to realize your dream of homeownership.

Mortgage advice: Should I use a mortgage advisor?

The short answer: Yes, you will probably want to use a mortgage advisor. Independent mortgage advisors have a breath of knowledge about mortgages offered through different lenders. What mortgage advisors are best at is searching the market for you and recommending the best deal. Stop by our Best in Mortgage awards to find a quality mortgage advisor for your needs.

How mortgage advisors help

There are a few basic reasons why using a mortgage advisor is usually a good idea, such as:

• Time. Finding the best deal for you takes a lot of research and time, especially since you must talk through your financial situation multiple times with multiple lenders. A mortgage advisor will take a lot of that burden off your plate.
• Expertise. An advisor will likely be able to secure you a better deal than you would find on your own. They can even improve your chances of being accepted for a home loan, since they will know, which lenders are ideally suited to your situation. Their knowledge will be especially helpful to you if you do not have a large deposit, have not been working with your employer for very long, or you are self-employed.

Additional reasons to use an advisor include:

• They will review your finances to ensure you are likely to meet the criteria for the lender’s affordability and lending criteria.
• They may be able to get you exclusive deals that lender do not otherwise offer.
• An advisor will help you with the paperwork, ensuring your application will be finished more quickly.
• They will help you see beyond the interest rate to additional costs and features you will need to consider.
• They will only recommend a mortgage that is suited to your situation advise on which loans you are more likely to qualify for.

There are also additional risks for not getting mortgage advice. For instance, you have the right to file a complaint if the mortgage you were advised to get turns out to be unsuitable to you, for whatever reason. If it comes to it, you can file a complaint to the Financial Ombudsman Service, or your local equivalent. All of this is to say that if you do get mortgage advice, you get more rights automatically.

Risks of forgoing a mortgage advisor

If, on the other hand, you forgo mortgage advice, you are essentially saying you take full responsibility for your decision. Additionally, you could:

• Pay more in the long run by making the wrong mortgage decision for your situation.
• Waste time and energy applying for a mortgage that does not fit the lender’s criteria.

Is it better to pay a mortgage broker fees or commission?

You should know in advance how your mortgage broker will be paid. It is therefore important that you ask them if they take a commission from the bank or lender, a fee from you—or both. You can also ask how much the commission and/or the fee will be, as well as confirm that the mortgage deal going ahead will dictate the fee that you pay. Occasionally, mortgage brokers leave it up to you whether they receive a fee or commission.

Whether your broker receives payment as a fee, or a commission, is of little serious consequence. In other words, there are no major advantages to paying your broker either way. If your broker is paid by commission, he or she should still be able to provide you with the best unbiased advice to get you the best mortgage deal.

Even still, however, it is best to ask about this upfront, if only to ensure that your advisor is not limited to a few providers but can advise you on all products available to them.

Occasionally, it will be best for you to pay the upfront fee to ensure you receive the best possible deal on your mortgage. This happens when the broker finds that the best mortgage deal for your situation does not pay commission, or not a high enough commission. A common situation would be if your mortgage is a better value for you over the long term, repaying the price of the advisor’s fee over time.

If your mortgage broker is charging you a fee, you can ask them why to ensure they are providing the best value for your money.

What questions should I ask my broker?

When shopping for a mortgage, you will first likely have to find the right mortgage broker. To get the best broker for you, it is important to ask a few questions upfront. Some questions worth considering are:

• Can you get me a mortgage from any lender, right now?
• Do you charge a fee?
• Are you qualified?

Here is a breakdown of each question and the possible answers you are likely to receive.

Can you get me a mortgage from anywhere in the country right now?

Asking this question will tell you if your broker can source any mortgage in the country. Since not all brokers can get you a mortgage from anywhere, it is important to know what you are working with. Some possible answers to this question include:

No. The reason for this answer would be that the broker is tied to one lender which searches fewer deals, making it simpler and more inexpensive to operate.

We shop for products available to brokers. Brokers oftentimes exclude products and lenders that are directly offered to the public, since on those they do not get commission. Hence the “available to brokers” part.

We inquire with all lenders. Occasionally, a broker will check a lender’s direct-only deals, but they will likely charge you a fee. Realistically, it is going to be difficult for a broker to guarantee that you have access to literally every mortgage, since exclusive deals are often arranged between lenders and brokers.

Do you charge a fee?

Typically, brokers receive two potential sources of income.

Commission. Usually, lenders pay brokers a “procuration fee”, which is about 0.35% of the transaction, and acts as a commission that is based on the size of your loan. But do not worry: the commission does not impact the cost of your mortgage. And before you apply for the loan, they are obligated to tell you the amount they will be paid.

Fees. The other scenario is that a broker will charge you a fee directly, which can even be on top of the commission, or instead of a commission. In that case, you will be refunded the commission and charged a fee. Brokers are considered “independent” if they offer you the choice between commission or fee.

Most reputable brokers charge you roughly 1% of the value of the mortgage, even if you have a bad credit rating. More than 1% is advisable to walk away from. You should know, as well, that so long as you are told upfront, fees can be charged at any point during the mortgage process. Once again, you should avoid any broker that charges you a significant fee prior to completion. You may be on the hook even if the purchase falls through.

Are you qualified?

You must ensure that the broker who is advising you is a qualified mortgage advisor. Prior to giving recommendations on the most suitable mortgage product for you, a broker must assess your eligibility and your needs. By ensuring your broker is qualified, you will also gain the most protection as a consumer. In case there is any wrongdoing, the Financial Ombudsman should be able to investigate.

Before you move on, we recommend that you read our advice on the seven types of mortgages you can qualify for. You may not be aware of everything as a first-time homebuyer.

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