If you’re anything like the majority of first-time homebuyers, you’ve probably heard the phrase “mortgage broker” used before without giving too much thought to what the term means.
However, if you’re thinking about getting into the market yourself, it’s time to learn. Working with one of these industry professionals is an easy way to help you save yourself time and a lot of hassle during the buying process since they can help you through the process of getting a loan.
Whether or not you end up deciding to use a broker, this post will help you make an informed decision when it comes to how to handle your mortgage:
So, what is a mortgage broker?
Put simply, a mortgage broker acts like a middleman between you and a lender. These professionals will work with you to guide you through the mortgage process, gather the financial information needed to get a pre-approval, shop around for which loan programs might be the best fit for you, help you apply, and walk you through the process of obtaining an approval.
Keep in mind, mortgage brokers are a third-party entity and aren’t associated with any one particular bank or lender, which makes them different from loan officers.
Since loan officers work for one company, they can only offer you products associated with that company. Mortgage brokers, on the other hand, can shop around to get you some of the best rates on the market.
Why would I work with a mortgage broker?
The number one reason you might want to work with a mortgage broker? Convenience. Since they take care of the application process for you, you only have to worry about submitting your application once. Technically, you could do what they do, but you’d have to apply for each pre-approval individually, and it would take a lot more research and legwork on your part.
The other reason is because brokers have access a wider range of current programs and interest rates. Again, you could do this research yourself, but since brokers are licensed and trained professionals, they may have a better eye for which loan programs are truly the best fit for you. They may be an especially good fit if you’ve tried applying for financing on your own before and have been denied.
Why wouldn’t I work with a mortgage broker?
The downside of mortgage brokers is that, like anything else, you pay a price for convenience.
Most brokers will charge you a loan origination fee as part of your closing costs. This fee usually amounts to 1% of the purchase price. For instance, if you bought a house for $200,000, you should expect to pay around $2,000 for the convenience of using a broker.
That said, sometimes brokers have the ability to negotiate so-called “no cost” loans. With these, the broker gets paid by the lender at closing, instead of you. However, in exchange for that small favor, the lender often ends up charging higher interest rates, which can end up costing you more money over time.
The other reason you may not want to work with a broker is because some loan programs may not accept them. Some larger lending institutions have recently started preferring to work with borrowers directly. However, it’s up to you to decide whether the benefits of being in a particular loan program outweigh the ease of using a broker.
How to find a good mortgage broker
Finding a good mortgage person is much like shopping around for any other professional. You may want to turn to trusted friends and family for a recommendation. You may also want to turn to other industry experts such as the real estate agent with whom you’ve been matched or your title officer.
With all that in mind, it’s also important to do research on your own. Go online research qualified mortgage brokers in your area. Read reviews to get a sense of others’ experiences working with them to get a loan.
When you’ve managed to compile a few, top candidates — three is usually a good number — conduct interviews to see which one can answer your questions to your satisfaction. In the end, it’s important to trust your gut and go with the person in whom you have the most confidence.