You’ve found the perfect new house or apartment to call your own, and now you need a mortgage to purchase it. But how does the process start, and can you be sure you’re doing it right? Should you use a mortgage broker to get your home loan or go directly to the bank? And what exactly do mortgage brokers do and how are they different from a bank loan officer or financial advisor? Here are some answers to those important questions and reasons for using or not using a mortgage broker.
What does a Mortgage Broker Do?
A mortgage broker is essentially the middleman between you and potential lenders that would be issuing your home loan. Your broker can compile a set of mortgage loan options from several banks on your behalf and present to you the best available terms and interest rates for your particular needs. A bank, on the other hand, will design and offer you a single rate for your situation. It’s possible that the bank will offer the lowest rate, but it will be up to you to do the extra research and compare it with other options.
Your mortgage broker will take additional actions on your behalf like verifying your income and employment. They will use all the information and documentation obtained on you to apply for loans with multiple lenders while working towards finding the best fit for your new mortgage. Whereas with a bank, if you already bank with that particular institution they may have already have all of your financial information on file which would expedite the qualification process.
Once your mortgage broker has found the best lender for you and your new home they will liaise with the bank’s underwriting department, the title company, and your real estate agent to handle all the details leading up to and on closing day. Sounds like a piece of cake, right?
How Do Mortgage Brokers Get Paid?
Like most professionals in this industry, mortgage brokers are compensated in the form of commission for their services. This is typically based on a percentage of the total loan amount. Commission is usually paid by the borrower at the time of the closing.
What are the benefits?
We’ve mentioned what mortgage brokers do and how they’re paid, but what are the real advantages to using one? Typically mortgage brokers compare mortgage rates from a large number of banks and lenders at once, so you will often get more options in loans working with a mortgage broker. Sometimes a mortgage broker may be the only option for someone with a tricky lending situation or difficulty qualifying in general.
What are the pitfalls?
While it may seem like hiring a mortgage broker is a no-brainer, there are a few pitfalls to keep in mind. Due to the ways in which mortgage brokers are compensated, it’s always possible for you to be overcharged working through them as opposed to going directly to a bank. Working directly with the bank instead of with a mortgage broker may also give you access to more attractive loans with lower rates.
So as you prepare to purchase that perfect new home, condo or apartment, be sure to consider your options of working directly with a bank to obtain your home loan or a more tailored approach with a mortgage broker. Either way make sure to do your homework, get your finances in order and know your options so you can walk into your new home knowing you are in the best financial position you could potentially be in.