Two time-honored statements still ring true, even in today’s fast-paced and ever-changing world of digital commerce and informed consumerism:
Owning a home is still a large part of “The American Dream,” and buying a home is probably the most important financial transaction most people will ever complete.
Even though Americans today may buy and sell several homes over the course of a lifetime, most still have at least some qualms about applying and qualifying for a home mortgage and then about signing the papers that commit them to making monthly payments over the long term, often three decades.
When interest rates are low, those mortgage payments seem like a fortune in real dollars when, at closing, a borrower takes the time to look at the amortization statement, realizing how the actual sum to be repaid differs from the amount that is borrowed.
A qualified loan officer or mortgage broker will be able to explain that “sticker shock,” but it makes good sense for buyers to consult with an independent broker who will work diligently on behalf of the borrower to secure the best loan package possible at the lowest available overall cost.
The days are long gone when a local bank or credit union will loan “house money,” based simply on character. With hundreds, if not thousands, of different loan programs and packages available to potential home buyers, it’s imperative to enlist the help of a qualified expert in the field.
What Is a Mortgage?
Mortgage loans should not be mysterious. They are simply a type of loan made by a bank or other type of financial institution to someone who wants to buy property in exchange for a fee, typically paid as a percentage of the loan balance over a specified period. Mortgages are similar to a car or boat loan, but they are usually for much larger sums over a much longer period of time.
Do Different Types of Mortgages Exist?
The simple answer is yes, and the roster of different types of mortgage loans available in the market today can be a major source of confusion for home buyers looking for a loan. In addition, the different types of mortgages have different eligibility guidelines, fluctuating interest rates, variable requirements for cash down payments and closing costs, and even caps on the total amount that can be borrowed, in some cases. To add to the complexity, there are federal, state, and local mortgage rules and disclosures and a large number of special programs that are accessible only to certain classes of borrowers.
Differences Between Loan Officers and Mortgage Brokers
Loan officers who are employed directly by a lender and mortgage brokers may actually have similar job descriptions. But there are differences. Brokers can be employed by a bank or brokerage that offers a single type of mortgage or a limited number of mortgage loans. Independent brokers, on the other hand, typically have wider access to a group of lenders with different products. They can assist prospective buyers by shopping for the best loan packages to meet specific needs.
A loan officer or mortgage adviser owes allegiance to his employer, and the loan packages available to a client are limited to those that the bank or private lender currently offers.
A mortgage broker’s commitment is always directly to the home buyer, and the goal is to find a loan that aligns with each client’s budget, needs, and long-term goals. A mortgage broker is apt to have broader knowledge of currently available loan products from a variety of lenders, and the prospective homebuyer can reasonably expect to have a more comprehensive choice of suitable mortgages to consider.
Here, then, is our list of the top reasons to use an Independent Mortgage Broker:
Just as clients might shop different banks in search of a mortgage loan, you should also consider other options. The advantage of working with a broker rather than a single bank or credit union lies in the broker’s ability to partner with multiple lenders to find the most favorable terms for a specific client.
Note: A single lender may offer many different packages, but it’s always to the buyer’s advantage to investigate a variety of available loans to find the best fit.
VARIABLE FEE STRUCTURE
Independent brokers often receive their compensation directly from the loan supplier (the mortgage lender), and the fees can vary. However, many brokers do not pass any portion of the cost of securing a mortgage on to their clients. Clients are liable only for the direct origination fees and financing costs of the loan, and typically those charges appear on the buyer’s loan settlement statement at closing. There are exceptions, however. Some brokers charge a flat fee to the buyer, which sometimes is added to the cost of the loan, repaid as part of the monthly payment over the life of the mortgage.
Note: Ask detailed questions about the fee structure; including how and when payment is due. And determine what obligations you have to the broker should you not be approved for a loan you seek, or if you choose not to close a loan for which you have been approved.
BROAD FAMILIARITY WITH REAL ESTATE TRENDS
Real estate trends vary substantially from one region to another, and trends always affect home prices and interest rates, which influence mortgage availability. Although you want your mortgage adviser to be able to guide you to the best deals in terms of financing, you also want someone who is knowledgeable about local sales records and forecasts as well as the state of the economy and national financial expectations for the next quarter or two.
Note: Although the traditional view is that real estate is always a good investment, some times are better than others. The best advice? Take on the obligation of a home mortgage only if it is justifiable, based on sound financial advice from a trusted adviser.
RANGE OF KNOWLEDGE, EXPERIENCE AND CONTACTS
Independent brokers possess a wide range of contacts. They are the entrepreneurs of the home mortgage world. They are motivated self-starters who typically give their all and have a desire to excel so that satisfied clients will help them build their business. Look for someone with the knowledge, experience, and personality and build a rapport, secure in the knowledge that you are dealing with a professional who is dedicated to finding a great mortgage deal for every client.
Note: It’s always wise to check an individual broker’s license, education, experience, business affiliations, and professional memberships before entering into an agreement. Affiliation with an organization such as the Association of Independent Mortgage Experts (AIME) can be reassuring. AIME is a nonprofit trade association dedicated exclusively to independent mortgage brokers. The organization supports mortgage professionals through mentorship, resources, tools, and technology available only to members.
APPLICATION AND DOCUMENTATION ASSISTANCE
There is a mountain of paperwork and documentation required to initiate and finalize a mortgage. An independent broker, by necessity, must monitor the timeline, adhere to all the requirements, and maintain strict accountability in order to ensure that the financing is in place and that the closing takes place as scheduled. It is this high level of personal commitment and attention that can make the difference between a stressful, frustrating journey and a pleasant homebuying experience.
Note: As you interview prospective mortgage brokers, don’t hesitate to ask for references or statistics regarding loan timelines and average number of days between application and closing.
With an independent broker, every client is more than just a number. Independent mortgage brokers provide clients with a level of service that is not often attained by a loan officer at a bank or a local credit union, even if the applicant is a long-term customer. An independent broker, on the other hand, provides clients with a different perspective. It can be highly flexible and community-focused, and a local independent broker is acutely aware that his or her reputation can depend on the quality of service offered to neighbors, local business owners, friends, and family.
Note: Independent brokers are success-driven. And that is a good thing. A client can be reasonably certain that any loan that does not close will be as disappointing to the broker as to the client. Look upon that fact as a plus!
INDEPENDENT BROKERS: TEACHERS AND ADVISERS
Prospective homebuyers may have basic knowledge about the process, but the proliferation of loan packages with unique requirements and the sometimes-volatile market fluctuations can be major stumbling blocks on the path to homeownership. Add to that the uncertainty about credit scores and money management on the part of buyers, and it’s no wonder that clients fear the problems they may encounter when applying for a home loan. Mortgage brokers frequently view it as part of their responsibility to educate clients about the ways in which they can optimize their credit and will identify “red flags” that might appear. The goal is always to present financial information in a clear, fair, and favorable light for evaluation by loan underwriters.
Note: The more informed a client is about rates and loan options, the easier it will be to qualify for a mortgage. It is important, however, to always be honest with a mortgage broker and not try to hide or falsify any financial information. Ask questions at the beginning of the relationship to make informed decisions about moving ahead with a loan application.
ACCESS TO NICHE LOAN PRODUCTS
The mortgage loan market has grown exponentially over the past few decades. In addition to conventional mortgages, FHA and VA loans, jumbo loans, specialty products for various classes of buyers and different types of housing, and refinancing loans, there are reverse mortgages, second mortgages, home improvement equity loans, and many others. The list continues to grow, and each type of mortgage loan comes with distinctive requirements, rates, and terms. Not all mortgage brokers deal with all types of loans, but most licensed brokers will have a general familiarity with specialty loans and niche products and can guide a client to the proper agencies or loan originators.
Note: If you have a question about what might be available to meet specialty needs, do not hesitate to seek the advice of a qualified mortgage broker in your local community. There are products that might be available in your locale to help you secure a home improvement loan for inherited property, for instance, or to qualify as a buyer for a family-owned urban farming operation.
TECHNOLOGY IS A MODERN CONVENIENCE
Because a mortgage broker typically wears many hats during the loan application and qualification process – interacting not only with lenders but also with real estate agents, underwriters, title companies, and attorneys – comprehensive knowledge and a detail-oriented approach are necessary. Independent brokers often do not have the benefit of staff with expertise in various areas to monitor the progress of an application or to run interference. For that reason, most independent brokers use powerful modern technology to research loan options, negotiate with lenders, and to retain real-time supervisory control over the progress of each loan application. Such software is a distinct advantage for loan applicants and for clients. Today, brokers can easily verify income and expenses online, pull credit reports and resolve inconsistencies, and coordinate and compile required documentation that moves a loan to approval.
Note: If it all seems like a task for a superhero, that’s certainly true is some cases. Some buyers credit their ability to move into a home to their mortgage loan brokers.
MORTGAGE BROKERS MAKE DREAMS COME TRUE
Even though there are no guarantees, these are ten good reasons for working with a mortgage broker. An independent broker is a professional financial expert who isn’t tied to a specific financial institution — and that multiplies every client’s chances of finding the “perfect” mortgage.
Note: Making the dream of homeownership a reality is an appropriate job for a superhero, but it’s an everyday task for a mortgage broker.