A mortgage broker can be your best friend if you are in the market to buy a home and don’t have the time or patience to go through dozens of applications.
You are partnering with a professional mortgage broker who will act as your comparison shopper, negotiator and chief advocate. Their job is to get you the best deal possible and guide you through the entire loan process.
Unfortunately, mortgage brokers are not free to work, so the cost of hiring one is more than what you would pay for a house. Is it worth paying for the services of a mortgage broker?
How Brokers Are Paid
A broker should be able to save you enough on interest rates and transaction fees to offset the cost of what he/she charges. The broker’s fee is typically 1% to 22% of the loan amount. It can be paid upfront or after the mortgage loan has been incorporated.
The Dodd-Frank Act prohibits mortgage brokers from charging hidden fees, tie their pay to the interest rate on the loan, and receive kickbacks for directing you to an affiliate company (e.g. a title company, or a home inspector). You also cannot receive payments from the lender.
There Are Many Benefits to Using a Mortgage Broker
Brokers don’t get paid unless the deal is closed. This gives them a huge incentive to find you a mortgage that meets your needs and provides terms and rates that meet your expectations.
This means that brokers are less likely take “no” for an answer. If a lender declines your application, the broker can help you overcome any obstacles that may be standing in the way of getting approved for a loan.
Other benefits of using a broker include time and frustration savings.
A typical broker works with five to 10 mortgage lenders so they are able to quickly evaluate a range of mortgage products to determine the best rates, terms, and closing costs. Brokers often have access to lenders who offer specialized mortgage programs such as low downpayment programs or home renovation programs. – and financial institutions that lend money to home buyers with lower credit scores.
You could certainly do this work yourself but it might require dozens of calls and face-to–face meetings as well as a lot of paperwork. A mortgage broker can help you. A broker can help you fill out your applications, negotiate with loan officers, and speed up the entire process because they have relationships with many lenders.
A broker will review your income statements, credit reports and employment history. To determine if you are able to afford a mortgage, and if so, which rates and terms you will be eligible for.
The broker can approach multiple lenders but only one mortgage application must be submitted – the one that is required by the lender. You would need to complete five applications if you were to approach five lenders directly. Brokers can answer your questions about the process and explain the legalese in the mortgage and other closing documents.
The Pros and Cons of Using a Mortgage Broker
Every profession has its “bad actors,” and mortgage brokerage is no exception.
It is clear that not all mortgage brokers are ethical, as Congress felt the need regulate the industry via the Dodd-Frank Act.
One common complaint is that brokers can be biased. This means that they will steer you to lenders they are familiar with, even if the terms and rates of the mortgage are not the best.
Unscrupulous brokers may do this in some cases because the lender pays them their fee, not you. This scenario can be avoided by asking who pays the broker and how much they will be paid.
Remember that brokers are not lenders and are not always able to negotiate the best deals. Sometimes you can negotiate with a lender to get a better deal.
Brokers are not the ultimate “deciders”, but mortgage loan officers might be able to waive fees, offer better terms, and lower interest rates. Brokers do not have the power to offer special deals or make exceptions to standard lending practices.
You may be able to negotiate a better deal if you have an existing relationship with a bank or loan officer.
It may take some time and effort to find a mortgage broker close to you. That’s because the number of licensed mortgage brokers plummeted during the last housing downturn – from about 25,000 in 2006 to just 5,000 in 2013.
However, finding a broker in your local area is a better option as they are more likely to be consummate professionals. Many “get-rich-quick” operators were forced out of business by the recession.