By Deborah Kearns
Choosing a mortgage broker might seem like a no-brainer if you go with whoever quotes you the lowest rates and fees. On the surface, that seems like a win-win strategy. But the lowest rates and fees can't make up for poor service or a lack of transparency.
To get the lowdown on how to cut through lending jargon so you know exactly what you're signing up for, we spoke to two veteran lending experts for insights. Joe Parsons is a branch manager with Caliber Home Loans in Dublin, California, and Kyle Kamrooz is co-founder and chief operating officer of Cloudvirga, an online mortgage lending platform.
Here are four important questions you should ask when evaluating mortgage brokers:
1. How does your application process work?
With more lenders offering online platforms so you can track the progress of your loan, the ambiguity around underwriting is slowly dissolving. But not all mortgage lenders are there yet, Kamrooz says. Here's what you'll want to know about the process:
- Average time to closing.
- Third-party fees and lender fees in an estimated fee sheet.
- Cost and timeline to lock in a mortgage rate.
- Specific loan product requirements for credit score, debt-to-income ratio, down payment, etc.
- Whether there's an online platform where you can upload documents and check the progress on your loan.
- Documents needed at each point in the loan process and deadlines for submitting them.
- Companies used for home loan services such as appraisal, title insurance, escrow, etc. (You can shop around for these services if you wish.)
2. What kind of experience do you and your team have?
If this is your first foray into homebuying, or if you're refinancing, it'll help to have someone by your side to make sense of the complex underwriting process, Parsons says. Here are key things to know about brokers' experience:
- How accessible and prompt are they?
- Do they have a support team or work alone? In other words, who will you be dealing with most of the time?
- How long have they been in business? Ask for references, too.
- Are they comfortable communicating the way you do -- phone, email, text, online chat, etc.?
- Do they provide straightforward answers that are clear and concise?
3. What rate can I get?
How you ask this question is crucial to getting the most accurate loan pricing, Parsons says. Instead of wondering what the current mortgage rates are, ask for specifics.
An example: "I have a credit score above 700, and I want a $300,000, 30-year, fixed-rate, conventional loan, and I have 20% saved for a down payment. What are your rates today?"
Interest rates fluctuate daily, so you'd need to get mortgage rate quotes all on the same day for an accurate comparison, Parsons says. Using a mortgage broker who can do the comparison shopping for you with a variety of lenders saves you time. The broker can find apples-to-apples loan products and mortgage rates so you don't have to do the legwork yourself with multiple lenders.
4. Will I even qualify for a mortgage if I have bad credit?
If you know you have a low credit score or a less than stellar credit history, you should be transparent with mortgage brokers from the start, Kamrooz says. Doing so will help them find home loans that are best tailored to your needs, especially if you're a first-time homebuyer.
Federal Housing Administration loans, for example, are ideal for borrowers with lower credit scores and minimal cash saved up for a down payment, but you still need a score above 580 to qualify, Kamrooz says. Kamrooz cautions that if you decide to go with a loan backed by the FHA or the Department of Veterans Affairs, you'll likely pay private mortgage insurance if you have less than 20% for a down payment.
"Don't feel defeated if you have a low score," he says, "but just know you'll pay a premium for it."
Next steps for choosing a mortgage broker
Ideally, you want to find a mortgage broker who offers competitive rates, great service and strong support from start to finish. A good mortgage broker will work with you to help you understand your credit report and will give you advice on improving your credit score, choosing the right loan, and ensuring that you have enough money left over for other life goals.
Even if you're just beginning to think about buying or refinancing a home, it's wise to talk to a mortgage broker early on to learn how you can set yourself up for success when the time comes.
Deborah Kearns is a staff writer at NerdWallet, a personal finance website. Email: firstname.lastname@example.org. Twitter: @debbie_kearns.