Whether it’s the first time or someone has done it before, buying a home is a big deal. When it comes to getting a mortgage for that home, many buyers wonder if it’s worth it to hire a mortgage broker or if they’re better off just going it alone. For those who are in the market for a home and are considering their loan options, read on to find the answers to five questions that will help them make a sound decision as they move forward with the process.
For those wondering what is a mortgage broker, the short answer is that they are essentially a middleman. Whether it’s real estate, finance, or some other industry, a broker is simply an intermediary who buys and sells goods or assets for others. When it comes to buying a home, a mortgage broker acts as a financial adviser who finds the best home loan to suit a client’s individual needs. They approach the search as if they were the customer, getting a sense of their plans and goals and then going out to search for the most appropriate solution for those circumstances.
Many buyers have a hard time understanding what does a mortgage broker do and how they really help homeowners. On a cursory level, mortgage brokers step into the middle of the relationship between a home buyer and their lender (retail and wholesale), working directly with each of them to facilitate the lending process. This means that a home buyer never actually communicates with their lender or bank—the mortgage broker does all the negotiation and footwork.
The first thing a mortgage broker does is work to understand what the homeowner wants and gets a detailed picture of their financial situation, which may include gathering credit, income, tax, and home equity documents. They’ll use that information to determine an appropriate loan amount and type for the homeowner, taking into account how every little detail will affect their overall financial stability.
Once everything is done on the homeowner’s side, the mortgage broker shops their rate to banks and lenders with the goal of finding a loan with a combination of the best mortgage rate and the lowest closing fees. They can then take care of the paperwork and submit the loan application on the homeowner’s behalf.
For buyers asking why use a mortgage broker instead of a bank, there are many advantages to using a mortgage broker instead of going straight to the bank.
Mortgage brokers have the ability to shop and compare mortgage rates between many banks and other lenders. When a buyer works directly with a bank, you must go with the rates and the products they offer.
If a home buyer does shop around without a mortgage broker, they’ll have to submit a separate application to each and every bank. Brokers can shop rates without having to submit an application to each lender, and they take care of all paperwork on the homeowner’s behalf, saving them a great deal of time and money.
Brokers are independent parties, which means they are able to act in the best interest of the home buyer and are not looking to push a product on the homeowner because it will make them look good in their boss’s eyes.
Mortgage brokers often have access to options that banks do not simply because of the relationships they’ve built in the business. They may be able to help a buyer get a loan closed with a wholesale mortgage partner that doesn’t work at the retail level. These relationships can prove invaluable for those with unique or difficult situations.
It’s hard to pin down an exact answer for buyers who want to know how much commission does a mortgage broker make since every broker will charge different rates. On a per-loan basis, brokers tend to make 0.3 to 0.7 percent commission on the total loan value. They may also get a “trailing commission” of 0.1 to 0.2 percent for each year that the loan stays active.
There are a lot of options out there, and it can be confusing to know how to choose a mortgage broker. Here are a few tips that home buyers can use to determine which broker will be the best for them.
Ask for recommendations from friends. If other people have had success with a particular mortgage broker, then it’s likely they’ll do a good job for you since they clearly care about their reputation.
Interview at least three brokers. Shop around and get a feel for how multiple mortgage brokers operate and how they interact with their clients.
Look for brokers who ask a lot of questions. This shows a genuine interest in helping you understand your individual situation and find the best options to meet your needs.
Mortgage brokers offer a lot of advantages for homeowners if they choose the right one. The important thing to remember is to find one who has your best interest at heart and truly wants to see you walk away with a loan that suits your needs.