When you’re in the market for a new home, securing a competitive mortgage rate is just 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 work with a mortgage broker, all you have to do is hand over your information and let them do the work for you.
Even better, mortgage brokers 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 and regulated financial 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.
Mortgage brokers are skilled at finding the best home loans for a wide range of financial situations, from straightforward to complex.
Unlike loan officers who are employed by a specific bank, mortgage brokers have access to multiple lenders and established relationships with many of them. This allows them to offer a wider range of loan options and potentially secure more favorable terms for their clients.
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.
A mortgage broker will guide you through every step of the mortgage process. This includes submitting the initial application and collaborating with the real estate agent, underwriter, and closing agent to finalize the loan.
To ensure a smooth and efficient process, you must gather all required documentation promptly and respond promptly to any requests or questions from your broker. By doing so, you can help facilitate a quick funding of your loan.
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.
If you have a good relationship with your bank or credit union, you may be able to work with a loan officer to secure a mortgage product.
Banks, credit unions, and other lenders may be able to provide you with a competitive financing offer without the need to use a mortgage broker if you have a strong credit history.
Not all banks and credit unions work with mortgage brokers.
The mortgage broker will shop around to find you the best interest rates. However, some major banks may be excluded from their loan options. Why so? Some banks no longer work with mortgage brokers and only consider loan applications submitted directly by customers, due to the recent housing market collapse.
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. Over time, you’ll spend a lot more on interest than you would pay a 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.
Mortgage Broker FAQs
Do I need to use a mortgage broker to get a mortgage?
No, you are not required to use a mortgage broker to get a mortgage. You can also apply for a mortgage with a direct lender, such as a bank or credit union.
How do mortgage brokers make money?
Mortgage brokers typically earn a commission from the lender for successfully arranging a mortgage. This commission is typically a percentage of the loan amount. They may also charge you a fee as part of your closing costs.
How do I choose a mortgage broker?
If you decide to work with a local broker, make sure they are experienced, reputable, and have a proven track record. You can ask for recommendations from friends and family, or research mortgage brokers online to find one that meets your needs.
Can a mortgage broker help me if I have bad credit?
A mortgage broker may be able to help you secure a mortgage even if you have less than perfect credit. However, you may have to pay a higher interest rate or provide a bigger down payment to compensate for the increased risk to the lender.
Can a mortgage broker help me with refinancing my mortgage?
Yes, a broker can help you with refinancing your mortgage. They can work with you to find a lender that offers the best terms for your specific needs and help you navigate the refinancing process.