Finding the ideal mortgage loan is the most important factor in purchasing a home. A mortgage broker can help identify the best options and source from multiple lenders. This gives you more product choices than you would have if you were working directly with lenders.
What is a mortgage broker?
A mortgage broker is an intermediary that helps you to find a mortgage loan. They analyze your financial situation and compare mortgage products from different lenders in order to help you choose the one that best suits your needs.
What does a mortgage broker do?
A broker is not able to make loans, unlike lenders who can lend money directly. They are able to connect with many lenders and compare the various products. Then, they recommend loan options that are likely to be approved for and that meet your needs.
A mortgage broker can also gather financial documents that you will need to apply for a loan, and then submit a preapproval request for you. They may also offer insight into the local market.
You may have heard the terms “mortgage broker”, “loan officer” or “mortgage agent” when you start the home-buying journey. A broker can help you find a loan, and will refer you to the lender who offers it.
A loan officer is a representative of a lender such as a bank. Although they can help you get a loan, they can’t refer you to products offered by their company.
If you are certain that you want an FHA loan for the purchase of a house, then you will need to borrow from a lender that offers these types of loans. These lenders can be identified by a mortgage broker.
You don’t necessarily have to use a broker to get a mortgage. You can request quotes from multiple lenders and do your own research on their offerings. A broker is a great option if you are short on time or just want to be sure that you have all options.
Fees and costs for mortgage brokers
One of two ways mortgage brokers are paid is:
- They are paid a commission by lenders.
- A broker fee is payable.
Ask about the fees and charges of a broker before you hire them. These are fees that you can pay to lower your monthly payment and your overall interest rate. You can find out how much they charge their borrowers direct to determine if it is worth the cost.
Brokers may steer you to loans that make them the most money if they are paid a commission by lenders. Kimber White, president of National Association of Mortgage Brokers says that mortgage brokers have a fiduciary obligation to recommend the best loan for you. Remember that lenders may charge borrowers a commission, but they could pass that cost on to you with a higher rate, or fees.
After the 2008 housing crash, the Dodd-Frank Act was passed to curb predatory lending practices by brokers and lenders. In the past, originators and brokers were paid to recommend loans that weren’t in the consumers’ best interests. This included loan terms or loan sizes that made it more difficult to repay.
Dodd-Frank created new regulations to stop predatory lending and make sure that consumers are only approved for loans that they can afford.
It’s a good idea to inquire about the type of loans the broker is most familiar with as well as the clients they usually serve. Check out reviews online and be on the lookout for comments about exorbitant fees.
Do I need a mortgage broker?
A mortgage broker is not necessary to obtain a mortgage. Many homebuyers are able to find a lender by themselves, through word-of-mouth or online research. A broker can help make the process simpler and open up loan opportunities that you may not have known about.
If you are trying to decide between a traditional mortgage and a government-backed loan, they can help you.
What do I need to be a mortgage broker?
Do you have a tight time frame for purchasing?
A mortgage broker is a great way to speed up the process of finding the right lender and loan product for you if you are buying in a hot area.
If you are moving quickly, such as for a new job or for other reasons, a broker may be an option.
Are you able to spend the time and/or interest necessary to research loan types, lenders and lenders?
A broker can help you if you feel overwhelmed by the process. They can help you make the right decision by analyzing your finances and comparing different loans.
Do you know the area where you want to purchase?
Maybe you are moving to a new place and don’t have any knowledge about local markets or lenders.
While your real estate agent will be able to fill in the gaps, a mortgage broker can help you find lenders that are willing to work with you.
Benefits of working with a mortgage broker
There are many reasons why you should work with a mortgage broker.
- You may be able to access better rates and loan options through them than you would on your own.
- They might be able recommend lenders based upon your specific needs (e.g., if you are a freelancer who requires a lender that is willing to work with self employed borrowers).
- These tools can help you save time when researching mortgages.
- They can keep your loan application on track by telling you which documents are required to process the loan.
- They might be able to offer advice and suggestions on how you can improve your chances of getting approved for a mortgage.
Finding the right broker can make home-buying much simpler than if you do it all yourself. You may also want to meet with several brokers.
You can then compare their fees and processes to make sure you are choosing someone who has helped borrowers like you.