If You Are Looking To Buy A Home You May Wonder What The Difference Between A Mortgage Broker And A Home Lender Is
If you are looking to buy a home, you may wonder what the difference between a mortgage broker and a home lender is.
Both help you get into your home and help with the lending process, but there are some differences, mainly that a lender represents one bank and a broker is an intermediary between the borrower and many banks.
This guide will walk you through the ins and outs of a mortgage broker to ensure you pick what is right for you and that you’re prepared with the right questions to ask along the way.
For An Investment Property
Cut out the closing costs and much of the closing wait time by leveraging your assets and buying your house with cash. Yes, you read that correctly. Buying your house with cash is a great way to rise to the top where the great real estate deals are happening.
Many people do this by taking money out of retirement or other assets, using it to buy a house, and then getting a mortgage on the property. The lender you work with when getting a mortgage on the backend is key, as it can be a bit more complicated than doing it on the front end.
Maybe But You Don’t Want Toand Here’s Why
Legally, you can own a home without homeowners insurance. However, in most cases, those who have a financial interest in your homesuch as a mortgage or home equity loan holderwill require that it be insured. And, for your own ongoing financial protection, you’ll want your home to have adequate homeowners coverage, as well.
Read Also: How Much Work History For Mortgage
Example Of Mortgage Terms
Your mortgage terms are the terms under which you agree to repay the loan to your lender. A typical mortgage term is 30 years, though some mortgage loans may have terms ranging from 10 to 25 years instead. A home equity loan thats used to draw out your equity, for example, might have a 10-year repayment term.
Mortgage terms also include the interest rate that you pay for the loan. Say you borrow $300,000 to buy a home. You opt for a conventional, 30-year loan. Based on your credit scores and other financial details, your lender offers you a 3.5% interest rate on the loan. You put $60,000 down and pay $200 per month for property taxes and $100 per month for homeowners insurance.
The interest rate and length of repayment determine how much youll pay in total for the home. Using this example, you would pay $1,377.71 per month for the loan. Over a period of 30 years, you would pay $147,974.61 in interest, $72,000 in taxes, and $36,000 for insurance for a total cost of $495,974.61
What Credit Score Do You Need To Buy A House
The exact answer for what credit score you need to buy a house can depend on the type of loan and the lenders requirements. For example, its possible to get a Federal Housing Administration loan with a credit score as low as 500, but if youre applying for a conventional loan, the lender might require a credit score of 620 or higher.
Read Also: Who Uses Equifax For Mortgages
Understanding Your Home’s Equity
Homeownership has many benefits, including the opportunity to build wealth over time through equity.
Homeownership has cemented its role as part of the American Dream, providing families with a place that is their own and an avenue for building wealth over time. This “wealth” is built, in large part, through the creation of equity.
How Do I Protect My House Title
The best way to avoid title issues is to have a professional conduct a title search on the property you plan on purchasing and to insure yourself against future title claims with title insurance.
If youre purchasing your home with a mortgage, your lender will require a title search and a lenders title insurance policy, which protects them financially against any claims against your homes title. The buyer pays these costs as part of their closing costs.
Additionally, its often customary for the seller to cover the cost of the buyers title insurance policy.
Also Check: Does Rocket Mortgage Do Manufactured Homes
What Is Home Equity
Home equity is the difference between the value of your home and how much you owe on your mortgage.
For example, if your home is worth $250,000 and you owe $150,000 on your mortgage, you have $100,000 in home equity.
Your home equity goes up in two ways:
- as you pay down your mortgage
- if the value of your home increases
Be aware that you could lose your home if youre unable to repay a home equity loan.
Should You Mortgage The House You Own
Owning your home outright provides a valuable equity cushion, and its exciting when you no longer shoulder the burden of monthly mortgage payments. The good news, though, is that you dont have to sell your home to access your equity.
Using a cash-out refinance, home equity loan, or home equity line of credit, homeowners can pull cash from their equity and use the money for many different purposes.
Make sure you understand the pros and cons of each type of financing and choose the best one for you based on your specific goals.
Also Check: Should I Use A Mortgage Broker To Refinance
Who Owns My House: Me Or My Mortgage Lender
The standard home buying process follows this formula: you find the right property, you go under contract to buy it, you get approved for a mortgage loan, the lender lends you enough money to buy the home, you sign papers, and you move into your new house. Since you were not able to pay for the property outright though, who technically owns the home, you or your mortgage lender?
The short answer is that you do. Your name will go on the title and the deed of the house. Your home serves as collateral on the loan, but you own it for most intents and purposes. You have the power to make decisions about the property including when and how to renovate, add on, decorate, paint, change the landscaping, etc. You also have complete control over when to sell your home. You also have the full responsibility to take care of the property in terms of repairs and maintenance.
However, since you are obligated to repay the mortgage lender for the money that actually paid for your house upfront, the lender has a legal interest in your property, which means you do not have complete ownership until the loan is paid in full. You signed several documents at closing, finalizing this financial arrangement.
It works much the same way as having an auto loan with the auto serving as collateral. It’s yours, but you still need to make the payment.
How To Compare Mortgages
Banks, savings and loan associations, and credit unions were virtually the only sources of mortgages at one time. Today, a burgeoning share of the mortgage market includes nonbank lenders, such as Better, loanDepot, Rocket Mortgage, and SoFi.
If youre shopping for a mortgage, an online mortgage calculator can help you compare estimated monthly payments, based on the type of mortgage, the interest rate, and how large a down payment you plan to make. It also can help you determine how expensive a property you can reasonably afford.
In addition to the principal and interest that youll be paying on the mortgage, the lender or mortgage servicer may set up an escrow account to pay local property taxes, homeowners insurance premiums, and certain other expenses. Those costs will add to your monthly mortgage payment.
Also, note that if you make less than a 20% down payment when you take out your mortgage, your lender may require that you purchase private mortgage insurance , which becomes another added monthly cost.
If you have a mortgage, you still own your home . Your bank may have loaned you money to purchase the house, but rather than owning the property, they impose a lien on it . If you default and foreclose on your mortgage, however, the bank may become the new owner of your home.
Also Check: Can I Get A Mortgage At Age 70
I Own My Home Outright And Need A Loan
If you own your home outright with no current mortgage its value is all equity. You can tap that equity by taking out a loan against the homes value.
There are several mortgage loan options available when you already own your home, including a cash-out refinance, home equity loan, or HELOC. So do your research and choose the best one based on your goals.
In this article
What If I Can’t Find My House Deeds
If the deeds went missing or were destroyed while in the custody of a law firm or financial institution then, if satisfied with the evidence, the Land Registry will register the property with an absolute title. If not, then it is usually the case that the property will be registered with a possessory title.
You May Like: How To Know How Much Mortgage I Can Afford
Home Equity Line Of Credit
A home equity line of credit is similar to a home equity loan. But rather than receiving a lump sum of cash, borrowers get access to a line of credit to draw from as needed.
Home equity lines of credit often have a draw period of 10 years, meaning you can borrow from the credit line and repay it, as often as you want, within that time frame. After the draw period ends, theres typically a repayment period of up to 20 years when you cannot borrow from the HELOC and must repay any outstanding balance with interest.
A HELOC is a revolving account, like a credit card, so the amount borrowed determines your monthly payment. HELOCs usually have variable interest rates.
Homeowners Insurance Will Offer Ongoing Financial Protection
After the mortgage on your house is paid off, no one will force you to buy homeowners insurance. But your home may well be your largest asset and a standard homeowners policy not only insures the structure it also covers your belongings in case of a disaster and offers liability protection in the event of an injury or property damage lawsuit.
Will all the money and care you’ve invested in your homeand lifeit’s advisable to guard against financial risk and always keep a homeowners policy in force.
Don’t Miss: Can I Add Someone To My Mortgage Without Refinancing
Can You Add Someone To A Mortgage
Typically, no, you cannot add an additional person to your mortgage. This is because the mortgage is an agreement between you and your lender entered into, typically, at the time of the purchase of the home. The bank agreed to lend you a sum of money in return for you paying a monthly mortgage payment and interest over 30 years. The bank calculated this interest rate and approved you for the loan based solely on your income, your credit, and your history. If you would have originally applied for the mortgage with two people, the resulting mortgage terms may have been different.
If you have two names on a deed and one the mortgage, however, you are not out of luck. While most lenders will not allow you to add a party to a mortgage, they will allow you to refinance the mortgage in both of your names. A refinancing is when you take out an additional, new mortgage with the lender for the balance of the current outstanding mortgage. The new mortgage will list both you and the new person, and will likely have different terms than the original mortgage. The funds of the new mortgage are then used to pay off the funds of the old mortgage, satisfying it. What you are left with is an entirely new mortgage agreement listing both people. There are significant costs to a refinancing, typically between 2% and 5% of the loan amount.
Interest Rates And Fees If You Borrow On Amounts You Prepaid
You pay either a blended interest rate or the same interest rate as your mortgage on the amount you borrow. A blended interest rate combines your current interest and the rate currently available for a new term.
Fees vary between lenders. Make sure to ask your lender what fees you have to pay.
You may not have to make any changes to your mortgage term.
You May Like: Can You Refinance Mortgage With Poor Credit
Types Of Title Insurance
There are two types of title insurance: lenders title insurance and owners title insurance.
A lenders title insurance policy protects the financial interests of the company that issues the mortgage . It makes sure the lender has the top claim on the property above any other liens. Youll have to purchase lenders title insurance any time you take out a mortgage, whether youre buying a home or refinancing. A discount may be available when youre refinancing if your loan is less than 10 years old, according to Prairie Title in Oak Park, Illinois.
Major mortgage investors Fannie Mae and Freddie Mac, who frequently buy home loans from lenders after closing, require the lenders title policy coverage to be at least as much as the mortgage principal. As you pay down your mortgage principal, the lenders coverage declines accordingly.
An owners title insurance policy protects the homebuyer. For an owners policy, the coverage amount is usually equal to the purchase price and remains constant for as long as you or your heirs own the home. This type of policy is optional and only needs to be purchased once.
How Many Mortgages Can I Have On My Home
Lenders generally issue a first or primary mortgage before they allow for a second mortgage. This additional mortgage is commonly known as a home equity loan. Most lenders dont provide for a subsequent mortgage backed by the same property. Theres technically no limit to how many junior loans you can have on your home as long as you have the equity, debt-to-income ratio, and credit score to get approved for them.
You May Like: Are Mortgages Cheaper Than Rent
Don’t Miss: Who Should I Get Mortgage Pre Approval From
I Want To Consolidate High
If youve already paid off your first mortgage, you probably have enough equity to pay off all your high-interest debts, like credit card debt or personal loans. This is typically done using a cash-out refinance. You tap your home equity, use it to pay off existing debts, and then effectively repay them to your mortgage lender at a much lower interest rate.
This can be a very smart way to save money on interest, especially when your mortgage interest is tax-deductible. But experts warn that using a cashout refinance for debt consolidation has risks, too.
Remember that the new loan is secured against your home. So if you run the debts back up and cant make loan payments, there could be a risk of foreclosure. Also, youd be using a long-term asset, the value of your real estate, to pay for shorter-term needs.
Recommended Reading: What Mortgage Companies Finance Mobile Homes
My Mortgage Is Almost Paid Off Can I Remortgage
If youre nearing the end of your contract and you own a substantial amount of equity, you could be in a strong place to remortgage. Usually, the more equity you own, the better as this provides more security to the lender.
A broker can calculate your new mortgage repayments with a range of lenders to compare which one would be the most suitable for you, being mindful of any early-exit fees or charges that could affect this.
Theyll contact your current mortgage lender to negotiate a deal and if a better one is found elsewhere, theyll manage the process on your behalf.
Remortgaging near the end of your contract to access cash is common for many homeowners but its still a big decision that could affect your finances for years to come, so take your time, weigh up your options and work with professionals.
Also Check: How To Get A Physician Mortgage
How Are Interest Rates Set By Lenders
Interest rates are the charges for the mortgage youre seeking. Mortgage rates are determined by analyzing a wide variety of factors, some of which have nothing to do with either the lender or the borrower.
Theinterest rate is determined by two factors: current market rates and the level of risk the lender takes to lend you money. You cant control current market rates, but you can have some control over how the lender views you as a borrower. The higher your credit score and the fewer red flags you have on your credit report, the more youll look like a responsible borrower. In the same sense, the lower your debt-to-income ratio , the more money youll have available to make your mortgage payment. These all show the lender that you are less of a risk, which will benefit you by lowering your interest rate.
If youre shopping around Freddie Macs research shows that soliciting even one additional offer can save borrowers $1500 on average youll want to get the best rate possible for your mortgage. But lenders sometimes offer very low rates but charge a number of fees. To meaningfully compare mortgage offers, youll need to look at their annual percentage rate .
The amount of money you can borrow will depend on what you can reasonably afford and, most importantly, the fair market value of the home, determined through an appraisal. This is important because the lender cannot lend an amount higher than the appraised value of the home.
