When you’re in the market for a new home, securing a competitive mortgage rate is equally as important as finding the perfect property. That’s where a mortgage broker comes in.
A mortgage broker acts as a middleman between you and potential lenders. They can save you tons of time and money by shopping around for the best mortgage rates and lenders for your financial situation.
What a Mortgage Broker Does
In a nutshell, a mortgage broker’s job is to research mortgage lenders and loan programs to narrow down your best options on the market.
But for them to effectively do their job, the borrower must be willing to provide the same information that they would hand over to a loan officer at a bank to get the loan process started. This includes:
- Identifying information so they can access your credit report
- Pay stubs and tax returns to verify your income
- Employer contact information to confirm your employment
- Financial statements
Otherwise, the mortgage broker will not be able to shop your information around with potential lenders.
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How a Mortgage Broker Can Help You
Shopping around for a mortgage is no easy feat when you’re juggling several balls in the air. But when you solicit the help of a mortgage broker, all you have to do is hand over your information and let them do the work for you.
Even better, a mortgage broker can usually get the transaction done in a fraction of the time it takes the average consumer.
Should I Use a Mortgage Broker?
There are several other pros and cons of using a mortgage broker. Here are a few to keep in mind:
The Pros Of Using A Mortgage Broker
Mortgage brokers are licensed professionals.
Mortgage brokers are licensed professionals and experts in their industry. While they must operate within certain guidelines, they are also knowledgeable enough to navigate the mortgage process and anticipate any issues with getting funding that may arise.
You can also have peace of mind that you’re in good hands since professional licensure is required to hold this position.
Mortgage brokers have access to a vast network of lenders.
Whether you have a quirky financial situation that could require a ton of back and forth with lenders or are the perfect candidate, most mortgage brokers can find the best home loans for you.
Unlike loan officers who work for a specific bank, mortgage brokers have access to multiple lenders and direct contacts with those lenders they work with on a consistent basis.
So, chances are they can jump through the hurdles much quicker than you could. And when you’re dealing with tough underwriters, it pays to have a connected professional on your side to help you get approved.
Mortgage brokers handle the entire mortgage process from start to finish.
From submitting the initial mortgage application to working with the real estate agent, underwriter, and closing agent to get the loan closed, a mortgage broker has you covered. All you have to do is gather all the necessary paperwork in a timely manner and respond promptly to any additional questions or requests to get the loan funded in a jiffy.
The Cons Of Using A Mortgage Broker
Some deals aren’t final.
Oftentimes, good faith estimates provided to the mortgage broker by the lender are an adequate representation of what sort of mortgage terms you will receive from the lender. However, rates and terms are in no way legally binding and could change before you close on the home loan.
You may qualify for a better deal with your financial institution.
Do you have a solid relationship with your financial institution? If so, you may be able to work with a loan officer that can get you qualified for one of their mortgage products.
You may also be able to walk into a bank, credit union, or other direct lender and qualify for a competitive financing offer without the assistance of a mortgage broker if you have a strong credit score and overall financial situation.
Not all banks and credit unions work with mortgage brokers.
The mortgage broker will shop around to find you the best interest rates, but some of the major banks may be excluded from their loan options. Reasoning: following the latest housing market collapse, some major banks stopped working with mortgage brokers and will only entertain applications submitted directly by customers.
How Much Does a Mortgage Broker Cost?
It depends on the home purchase price and how much cash you have at your disposal. But keep in mind that mortgage brokers work on commission and are paid at closing. However, you may be able to roll these closing costs into the mortgage loan.
Compared to the value mortgage brokers can provide, the borrower fees for using one are minimal. Mortgage broker fees are generally between 1% and 2% of the loan amount as their commission in most instances. They may also charge loan origination fees, loan administration fees, upfront fees, or a yield-spread premium. You should sort out what their fee structure is before you start working with a mortgage broker.
While this may seem like a hefty amount, it beats settling for a mortgage with a steep interest rate since chances are you’ll spend a lot more in interest over time than you would have to pay the mortgage broker.
In some instances, the mortgage broker may find a mortgage lender that will pay their commission. If so, you won’t be responsible for paying anything out of pocket.
How to Find a Mortgage Broker
There are scores of mortgage brokers to choose from, so here are some tips to help you narrow down your search:
- Ask for referrals from relatives, friends, and your real estate agent.
- Verify their licensure by using National Mortgage Licensing System.
- Check their affiliation with professional associations, like the National Association of Mortgage Brokers.
- Analyze customer reviews to see if they’re reputable.
- Confirm fees since commissions vary across the board.
- Check with the Better Business Bureau.
Shopping around for a home loan can be tedious, but using the right mortgage broker will ease the bulk of the stress. Plus, you could save a bundle in interest over the life of the loan by securing a product with a low interest rate.