Yahoo Finance Should I Work With a Mortgage Broker?
If you're embarking on the homebuying process, you may consider whether working with a mortgage broker is right for your transaction. While you can sort through loan types and rates on your own, mortgage loan experts like brokers might be a good option to help expedite securing the right lender for your home purchase. Before you head to a big bank, credit union or private lender, here's what you need to know about collaborating with a mortgage broker.
What Do Mortgage Brokers Do?
Mortgage brokers are licensed and regulated financial professionals who act as the bridge between borrowers and lenders. They originate loans and help you connect with a variety of lenders who best fit your financial situation and rate requirements.
"As mortgage brokers, we're able to offer buyers the products of as many banks as we can handle, which gives them a broader product set," says Andrew Weinberg, principal at Silver Fin Capital. "A good mortgage broker anticipates hiccups before they occur. Our expertise is knowing what kinds of issues, like closing on time, will come up on loans that might make it not work at one lender, but may make it work at another."
Whether you're purchasing or refinancing a residential property, brokers gather loan options in addition to necessary paperwork, like income and bank statements, credit reports and employment history, to give a file to lenders to secure a home loan, as well as help your transaction close properly and on time.
Unlike a mortgage banker, who only offers one bank's products and uses the bank's funds to originate loans, a mortgage broker offers loans from a variety of lenders, and the lending companies provide funds for the mortgage. Because mortgage brokers' experience and capabilities can vary, shopping around is your best bet to find not only a good personality fit, but also a broker who has the right knowledge to support your homebuying experience.
Jennifer Beeston, vice president of mortgage lending at Guaranteed Rate, an online mortgage lender, says, "Consumers should speak with mortgage brokers because with more options, they have more choices in terms of both rate and loan types. Brokers know the guidelines, so they try to put you with a good fit from Day One."
How Do Mortgage Brokers Fit Into the Homebuying Process?
Mortgage brokers act as the middleman between you and the lender, securing loans and gathering paperwork. They work in tandem with real estate agents, underwriters, lenders, title companies and attorneys through the entire purchasing process.
[Read: The Best Mortgage Lenders of 2018.]
"Without the money from a loan, most people can't buy a house, and you want to make sure you're preapproved before you go under contract," says Elysia Stobbe, author of "How to Get Approved For The Best Mortgage Without Sticking a Fork in Your Eye" and branch manager at NFM Lending. "From when the buyer has to apply for a loan to deadlines for appraisals, home inspection, negation period and closing time frame, it's important your real estate agent and mortgage broker are working on the same team."
After you choose an ideal lender, brokers work to secure preapproval for a loan. They then send your paperwork to an underwriter at the lending bank to set up disclosures and order an appraisal for the home.
After mortgage brokers clear any extra conditions for the transaction and assist in getting the home's title in order, your file and home are ready to close.
How Do Mortgage Brokers Get Paid?
When the loan closes, mortgage brokers get paid a commission by the lender, which is typically 1 to 2 percent of the total loan amount. This is the case if you choose a no-cost loan, which rolls the broker fee into the loan amount, but can also mean higher interest rates. The other option is to pay a loan origination fee to the broker separately, which is also usually 1 to 2 percent of the loan amount.
"We don't charge the borrower while we run their credit and work on the loan, or if the loan doesn't work out; we get compensated on closed transactions," says Weinberg. "Some say if the lender pays us, the borrower is paying us. I'd agree it's baked in, but we're mortgage experts in small local businesses who deliver mortgage business to lenders and there's always a cost for loan origination."
Best Practices for Finding a Good Mortgage Broker
In order to have a smooth transaction and sync up with a top mortgage broker, you need to research and look for a positive trend in client reviews, get a referral from friends, family or a seasoned real estate agent, or speak to someone who has recently purchased a home.
For reviews, evaluate the individual broker, not the company they work for. "The No. 1 thing consumers who are shopping for loans should do is look at third-party reviews for the individual originator," says Beeston. "Then they can see how the broker is treating clients and what type of service they're giving."
[Read: How to Get a Mortgage With No Down Payment.]
Interviewing different brokers at the start can help to find the right fit of personality, professionalism, responsive communication and trust. It gives you a good idea of how the flow of the mortgage process will go and what you can expect in terms of service quality. Take into consideration the manner in which brokers communicate and answer questions, your connection level with them, their rates and their ability to close on time.
"You must feel comfortable with the mortgage broker and feel like you can tell them anything, because in order to have a successful loan, you need to tell them everything," says Beeston. "You don't want a relationship where you feel like they're condescending, or you feel like a burden or a nuisance, because there's so many talented brokers who would love your business."
Advantages of Using Mortgage Brokers
-- They are mortgage experts who provide different lenders, loan types and rates for buyers without upfront charges.
-- They can offer loan and rate options that a traditional bank may not be able to.
-- They gather and manage critical paperwork while coordinating loan information with relevant parties.
-- They help create your loan and close your homebuying transaction properly.
-- They typically close on your home faster than a traditional bank.
-- You're not locked into working with a mortgage broker, and if for any reason they're not providing exceptional service, or are being abusive or noncommunicative, you can change brokers.
Disadvantages of Using Mortgage Brokers
-- In the competitive mortgage business, brokers looking to close as many loans as possible may not always provide great service.
-- For certain borrowers, traditional banks could offer loans that are more advantageous than what a mortgage broker could offer.
-- Mortgage brokers may have less control over your loan file because it's not underwritten in-house like with a mortgage banker.
-- Failing to do your research on mortgage brokers could mean ending up with a broker who improperly structures your loan, delays your closing date or makes the homebuying process tedious and difficult.
-- Mortgage brokers can add to your homebuying stress, especially since you can evaluate loans and rates without involving a third party.
Mortgage Broker Pitfalls to Avoid
"Just because a mortgage broker's licensed doesn't mean they're skilled at their craft," says Stobbe. "I'd interview them and your real estate agent, and ask them questions just like you would when you go to a doctor. Buying a home is typically the largest purchase consumers make in their entire life, and I think they should be asking questions."
Avoid mishaps by interviewing mortgage brokers to get a feel for their customer service, what products they offer and if they have a good track record of closing loans on time.
[Read: The Best Home Equity Loans.]
Buyers should also make sure their mortgage broker is a team player, as the transaction hinges on the positive interactions of the broker and every party involved in the process. If the broker and real estate agent don't communicate properly, money can be left on the table, says Stobbe.
Weinberg says, "Do your due diligence before you choose somebody, and if you can't trust them, it doesn't matter what they say. And just because someone offers you a lower rate doesn't mean they can deliver it."
Getting the Most Out of Working With Mortgage Brokers
Beeston says, "You have to check third-party reviews and shop around. Consumers believe they don't need to shop rates when working with a mortgage broker because they're shopping for you. But shopping is better for you because you don't know how much the mortgage broker you're working with is charging, and you may talk to two brokers going to the same investor where one charges a higher percentage just to get paid more for your loan."
Ensure the mortgage broker respects you as a valued customer, can complete your transaction within your specific time frame, communicates effectively and is someone you trust and feel can protect your interests. "It comes down to the individual originator," Beeston says. "And if you're properly vetting who you work with, you shouldn't have any problems; that's key to this."
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