If you are looking to get a mortgage, you’ve probably encountered two main avenues to getting your loan – banks, and mortgage brokers. What does a mortgage broker do exactly? What are the advantages of working with one instead of a bank?
A mortgage broker is an intermediary between you (the borrower) and the entity providing the money for the loan (the lender). Mortgage brokers help the borrower to get their documentation in order, pulling their credit report, and otherwise determines their financial status and ability to obtain a mortgage.
A mortgage broker is an assistant, expert, matchmaker, and guide all in one. It’s their job to make the process of buying a home as simple and painless as possible, while simultaneously finding the lender and mortgage product that’s right for you.
How Does a Mortgage Broker Help You Buy a House?
When you decide to start working with a mortgage broker, the first thing they’re going to do is assess your financial health and ability to secure a loan. This means looking at your credit score, calculating your LTV ratio, and going over past financial documents. Using this information, a broker can determine what kind of loans will be best for you, as well as your likelihood of approval. Because they don’t work for just one bank, a mortgage broker has access to different loans from all kinds of different lenders. This means that they are able to offer homebuyers a much greater range of options.
For new homebuyers, this takes a lot of the legwork and guesswork out of the equation. Instead of presenting a borrower with an overwhelming number of options, a broker is able to narrow the field towards products that best suit their client.
Once your broker has established the product that is right for you, you can move forward with the mortgage process. This means obtaining pre-approval from the lender. A pre-approval is typically dependent on the borrower’s credit score, and indicates the maximum amount that the lender is willing to loan.
After the pre-approval is complete, you can proceed with a mortgage application. Lenders require mortgage applications to ensure that borrowers are in a healthy financial position to buy a house and repay the loan they have taken out.
A typical mortgage application requires a lot of work. Lenders want to see a full financial history, including credit score, employment history, income, and more. This part of the process can take a long time – it’s very important that everything is in order before the application is submitted.
Mortgage brokers help their clients with this process. They will pull credit reports, organize documents, and generally help prepare the application. Using a broker speeds up the application process and ensures that the necessary information is organized and ready to go. Once the mortgage application is approved, you can begin the closing process, and take ownership of your new home.
How Does a Mortgage Broker Get Paid?
Mortgage brokers charge a fee for their services. Typically, it equals 1-2% of the total loan. Often, this amount is covered by the lender, although sometimes it is paid by the borrower. If the borrower is paying the broker’s fee, that sum is paid out of the mortgage.
Mortgage brokers follow strict laws when it comes to charging and disclosing fees. To provide buyers with full transparency, brokers are required to reveal their compensation in a process called a “Closing Disclosure.” This helps keep the process clear and clean and ensures all parties are equally aware.
Brokers also have to set their fees up front, and they cannot change that amount at any point throughout the process. Additionally, Qualified Mortgage rules prohibit brokers from making more than 3% on a loan.
Why Should I Work with a Mortgage Broker?
Mortgage brokers are your homebuying superheroes. They are there to provide you with advice, support, and resources at every step of the way. Buying a house is a long and complex process – mortgage brokers exist to make it easier. That way, you can focus on the other aspects of owning a new house!
- Specialized advice and expertise
- Greater ease of communication
- A more nuanced understanding of the mortgage industry
- The ability to simplify and expedite the process for their clients
- Answer any questions and address any concerns the client may have
- More options to the consumer, by enabling them to shop the market for the best price
- Accountability and competition among their providers
These professionals are here to give you options, expand your horizons, and help you make your situation work. If you are trying to buy a house with less than ideal credit, there’s a broker for that. If you are unable to put down a 20% down payment but you want to buy a house, there’s a broker for that. Veteran? There’s a broker for that. Want to use FHA loans? You guessed it – there’s a broker for that.
While it’s true that engaging a mortgage broker costs money, this fee is often covered by the lender.
Buying a house is a major decision, and it can be frustrating, nerve-wracking, and full of uncertainty. Fortunately, there’s a broker for that.
Find out why brokers are better – access the broker directory and find your local mortgage experts today.