Do You Need a Mortgage Broker?
Monday Jan 30th, 2017
Many homebuyers use the services of a mortgage broker in order to find the best terms and rates. A mortgage broker collects all the necessary documents from a borrower and gives those documents along to a mortgage lender for underwriting and approval. The mortgage funds are lent in the name of the lender, and the broker takes an origination fee from the lender as compensation for services. Working with an experienced and competent mortgage broker can help you find the mortgage you need. There are both advantages and disadvantages that you should consider before committing to one.
The primary goal in search for a mortgage is to find one with a reasonable interest rate and low fees. A mortgage broker receives payment as a fee from the lender for bringing in the clients. This fee can be based on the characteristics of the mortgage, and can vary among the different lenders. It means a broker's goal is to get you into a mortgage that maximizes their compensation.
Mortgage brokers are in contact with a wide range of lenders, some of whom the borrower may not even heard about. The alternative to working with a broker is to call up dozens of lenders and compare their mortgage terms and rates. A broker saves the time and headache of having to do that. A broker also can guide you away from the lenders with burdensome payment terms hidden in their mortgage contracts.
When a mortgage broker first shows you the offers from lenders, they often use the term "good faith estimate." It means that the broker thinks that the offer will represent the final terms of the deal, but this is not always the case. Sometimes, the lender may change the terms based on the borrower’s actual application and the client may end up paying a higher rate or additional fees.
Some homebuyers think that a broker can deliver a better deal than they could get on their own, but this is not always the case. Some lenders may offer homebuyers the exact same terms and rates that they offer mortgage brokers.
A number of lenders work exclusively with mortgage brokers and trust them to bring them suitable clients. One may not be able to contact these lenders directly to get a retail mortgage. Brokers may also be able to get special rates from lenders due to the volume of business generated that might be lower than you can get on your own.
There are types of fees that can be involved in taking on a new mortgage or working with a new lender, including start fees, application fees, and appraisal fees. Sometimes mortgage brokers may get lenders to give some or all of these fees which can save you hundreds to thousands of dollars.
Some lenders are finding that broker-originated mortgages were more likely to go into default than direct lending. Working with a broker, one may not have access to these lenders, some of whom may be able to offer a better mortgage terms than you can get through the broker.
Mortgage brokers may be able to find the loan of dreams, but one should understand the potential downsides before hiring the broker. It’s possible to spend some time contacting lenders directly to obtain an understanding of what mortgages may be available. Work with a reliable mortgage broker and ask them to guarantee their loan estimates.