Many home buyers assume that they have to go directly to a lender to find a loan. However, that’s not the case when you use a mortgage broker.
Here’s what you should know about mortgage brokers before using one to secure home financing.
What Is a Mortgage Broker?
A mortgage broker works with several different lenders to offer a wide variety of loan products. They then meet borrowers’ unique financial needs by offering professional mortgage advice.
Mortgage brokers must take a course, pass a test, and apply for a license to be considered legitimate. As a result, mortgage brokers often have the knowledge and experience necessary to help borrowers secure the best possible mortgage loan for their financial situation.
What Do Mortgage Brokers Do?
Mortgage brokers act as intermediaries between the lender and the borrower throughout the entire transaction from application to closing. They can offer a wider range of loan products than a single loan officer. Mortgage brokers may be able to inform you about loan programs that you wouldn’t consider on your own.
A broker’s work doesn’t end once a borrower has identified the right lender and loan product. Brokers then go to the lender and negotiate the best rates on their client’s behalf.
There are two ways a broker can get paid, lender-paid or borrower-paid, but never both. Both types are considered broker fees. A broker is paid in one of two ways: they’re either paid by the lender or the borrower. Both are considered broker fees.
When they’re lender-paid, mortgage brokers receive a commission from the lender for their hard work. Most brokers earn between 0.5% and 2.75% of the value of the loan amount, depending on the type of loan.
When they’re borrower-paid, brokers may charge the borrower a broker fee for their services. Most brokers charge around 1% to 2% of the loan value that is due at the time of closing. Mortgage brokers are not able to charge a broker commission higher than 3% for their services.
Does It Make Sense for You To Use a Mortgage Broker?
While working with a mortgage broker can be an effective way to get the best possible mortgage, it isn’t always the correct route. The benefits of a broker depend on the borrower’s financial situation and what they’re looking for in a mortgage.
If you’re short on time and need to secure a mortgage as soon as possible, it may make sense for you to work with a mortgage broker to help streamline the process. If you’re looking to take your time in your home search and want to avoid multiple hard inquiries on your credit report, you may want to work with a mortgage broker to make a single hard inquiry.
If you have a unique financial situation with a low credit score or are looking for a specific type of mortgage, you may want to work with a mortgage broker to receive the best possible loan product and terms for your unique needs. Some mortgage brokers can also give you access to loan programs you typically won't find at a bank, such as no income loans (DSCR) or lite doc loans.
What Are the Alternatives to a Mortgage Broker?
There is only one alternative to using a mortgage broker, and it involves directly approaching direct lenders yourself.
While this may seem like a more direct approach, it’s more complicated than meets the eye. You’ll typically need to approach multiple lenders at your bank or credit union to determine the best possible interest rates, loan types, and terms.
Shopping around may also be necessary if you’re looking for specific loan options that not every lender offers. In this case, you can expect to conduct plenty of independent research, spend a decent amount of time meeting with different lenders, and fill out more than one loan application. This requires more paperwork and more legwork on the part of the borrower.
Working with a mortgage broker offers a streamlined application process to help you get the best loans possible using a single meeting, application, and credit inquiry.
How to Find the Best Mortgage Broker for Your Needs
While working with a mortgage broker may suit your needs and financial situation, it’s only beneficial if you can find an experienced and reputable mortgage broker or a mortgage banker.
You can find the best mortgage broker to meet your needs by asking family and friends for recommendations. If you can’t get referrals from family, friends, or real estate agents, you’ll need to research brokers online using sites like Google, Yelp, and the Better Business Bureau. Simply search for mortgage brokers near your location and sift through the list of local brokers who can help you secure the best mortgage rates.
From there, it’s up to you to do your due diligence and decide which broker is the right fit. Make sure that your broker is licensed and has positive customer reviews before setting a meeting.
What To Ask a Potential Broker
Whether you’re meeting a potential broker over the phone, online, or in-person, you need to prepare a comprehensive and detailed list of questions. If you’ve never worked with a broker before, you may be unsure of what to ask.
Thankfully, Vaster has done the hard work for you to help you find the best mortgage broker for your needs:
Ask about their fees to know what percentage you’d need to pay as the borrower.
Ask which type of mortgage they would recommend based on your financial situation. There are many different types of mortgages, from conventional loans to FHA loans to jumbo loans and more.
Ask how much you’re eligible to borrow. This can give you a good idea of how to conduct your house search by only looking at properties you can afford.
Ask how much your down payment should be. Sometimes, you may decide to put more money down to avoid a higher interest rate.
Ask how much your loan will cost. Brokers should be able to provide an estimate of the total costs of your mortgage, including principal, interest, taxes, and insurance.
How To Make Sure Your Broker Works for You
Once you have found the right fit, you need to ensure that your broker works for you throughout the process.
Your broker should be well-informed of your financial information. Be prepared to offer in-depth details that can help them find the right mortgage for your needs.
You also need to remember that some mortgage brokers may have a “hidden agenda” based on lenders’ commissions and their compensation. Ensure that you stand your ground and advocate for yourself if you’re not convinced about the loan product being recommended by your broker.
The Final Rundown
The right mortgage broker can be an incredible asset to your home buying journey. For the best mortgage brokers with unrivaled experience and expertise, contact Vaster. Our brokers stand ready and willing to help you get the best deal on your home loan.