The process of finding and buying a home can be complicated and stressful, but you don’t have to go it alone. A real estate agent can help you to find the right house; a mortgage broker can help you get the best deal.
Everyone understands what the former does and why they need them, but many first-time buyers often overlook the services of a mortgage broker.
The question is, what is a mortgage broker, what services can they provide you with and should you work with one?
What is a Mortgage Broker?
A mortgage broker acts as an intermediary between you and the mortgage lender. The broker has your best interests at heart, working with the lender to help you secure the home loan you need at an interest rate you can afford.
Mortgage brokers are fully licensed and regulated. They know enough about mortgage companies to understand what makes them tick and help you secure the best rate from the many different lenders out there.
The broker will pull your credit report, gather documents pertaining to your income, creditworthiness, and affordability, and work as the middleman throughout. Once you find the best mortgage lender for you, the broker will help you file the loan application and work closely with the mortgage underwriters to ensure everything runs smoothly.
As a first-time homebuyer it can be very helpful to have someone like this on your team. It can feel like you’re entering the home loan process blindfolded, with little more than references and advice from friends and family to guide you.
It’s not a hugely complicated process, but when it’s your first time, a lot of money is at stake, and you’re trying to juggle your everyday life with all these new demands, it can feel overwhelming.
How do They Get Paid?
A mortgage broker can be paid by the borrower, but more often than not they are paid by the lender. The mortgage lender pays the broker anywhere from 0.50% to 2.75% of the total mortgage amount on average. This means that on a $100,000 loan, the broker could be earning $500 to $2,750.
It can seem like a lot of money for one mortgage acquired for one buyer. However, once you consider all the work that goes into this process and the length of time it takes, as well as the fact that mortgage brokers are highly specialized individuals, it begins to look like a bargain. More importantly, you’re not the one paying the fees, so you don’t need to worry about them.
If you have any experience with affiliate companies or lead generation, it’s kind of the same thing, but on a much grander scale. Simply put, the mortgage lender needs customers and they get those customers through the broker, rewarding them with a small share of the profits in exchange.
Are Mortgage Brokers Fair?
You could be forgiven for thinking that mortgage brokers are only interested in earning money and will steer you down whatever path earns them the highest share. However, their only goal is to find the right mortgage rates for you and as long as you get a mortgage in the end, they won’t care.
They’re getting paid either way and it doesn’t benefit them to focus on a single lender. They’ll look at all mortgage products and loan options; they’ll compare all lenders, and they’ll remain with you throughout the mortgage process. That’s all that matters, and you don’t need to worry about favoritism.
Mortgage Brokers vs Loan Officer
The main difference between a mortgage broker and a mortgage loan officer is that the former works as a middleman between you and the lender, while a loan officer works directly for the lender and is paid a salary by them.
A loan officer is also employed by just one mortgage lender, while a mortgage broker works with multiple lenders.
Do I Need a Mortgage Broker?
The mortgage process can take a lot of time and it’s time that you might not have. If you’re busy and you’re going into this process blind, we recommend working with a mortgage broker or at least looking at ones in your area to see what sort of benefits they can provide you with.
In any case, whether you’re working directly with big banks and credit unions or going through a mortgage broker, it’s important to study the interest rates and closing costs closely. Are you getting cheaper rates but paying huge closing costs? Are you paying over the odds for your origination fee just to get a few fractions shaved off elsewhere?
A mortgage is something that may stay with you for several decades, and if you make a bad decision now, you could pay thousands or tens of thousands extra in that time.
Always check the loan terms before you sign on the dotted line and commit to the home purchase. It’s also important to understand the house prices in your area and to have a good grasp of the current housing market. If there is any doubt that the market is about to go into freefall, you may be better off waiting for a year or two.
Real estate is usually a sound investment that increases in value over time, but if you buy at the height just before a crash, that house may lose a lot of its value in a short space of time and take years to recover.
Finding a Mortgage Broker
We usually don’t advocate asking friends and family for advice when it comes to things like this. After all, the internet exists, and you can “ask” millions of people for their opinions at the press of a button, so why would you focus on one person?
However, when it comes to local mortgage brokers, this is one of the best tactics. You trust your friends and family to give you an honest opinion and when you don’t have a lot of reviews to read through and a lot of information to check, that opinion could be invaluable.
This works best if you have multiple people to ask. The problem is, many of them probably had a good experience and as they likely only worked with one mortgage broker, they’ll probably only gave that one recommendation to make. So, compare recommendations from different friends, see if any of them match, and pay more attention to the friends who have worked with several different mortgage brokers.