If you live in the world we live in, then you’ve probably heard the term ‘mortgage broker’ somewhere. Maybe you heard good things about it, or you may also have heard some bad stuff about it as well.
For now, let’s set these opinions aside, and let’s try to understand what a mortgage broker really is and also what they do. So, a mortgage broker is essentially a middleman between a mortgage lender or bank and the borrower or homeowner. They work directly with both the lender and the borrower, and their main aim is to help the consumers qualify for a mortgage – whether it’s a refinance or a purchase mortgage.
These three entities don’t communicate with one another at a single time. Instead, the broker is the one who communicates to both parties separately. This is to say that with the broker as the intermediary, at no point will the borrower ever speak to the lender directly. In fact, some borrowers don’t even know which lender the broker decided to apply for the mortgage with until loans servicing documentation are sent to the borrower. That’s when the borrower finds out the name of the lender bank.
So, how does the mortgage broker thing work?
When a prospective borrower contacts the mortgage broker, and the broker decides to take the job, he starts the application process by gathering all the relevant financial information. This includes the income, assets, as well as employment documentation, and not forgetting the credit report. All this information helps the broker assess the possibility of the borrower getting the mortgage. Even with the broker out the picture, if you decide to present yourself to a lender, the same information and documentation will be required.
If it is a refinance, the lender will assess your current home equity, the appraised value of the property and they use of a mortgage payment calculator to determine if there are any loan terms that might benefit the borrower.
So, after the broker has all the necessary information, they can then determine the best solution for the situation. This includes setting up the proper loan amount and also determining the type of loan that works best for the borrower. The homeowner does have a say in all these, in fact, they can decide on all these on their own. The broker is there as the assistant.
The borrower should do their research beforehand, so as to ensure that they are not steered in the wrong direction.
Why do you need a mortgage broker?
Mortgage application isn’t a walk in the park. There are a lot of processes that are involved before you are actually given the loan. And given that most borrowers are often busy and usually have pretty hectic schedules, hiring a broker is the next logical solution for the borrower. A broker helps you navigate all the stages involved in finding and applying for a mortgage, enabling you to get the best possible deal based on your individual circumstances.
For instance, a broker:
- Helps you to assess your finances
- Suggest the most suitable solution based on your needs
- Conducts research on the market in order to find the best deals that match your criteria.
What are the advantages of using a mortgage broker?
Convenience – in cases where the borrower doesn’t have a good working knowledge of the mortgage and finance markets, or if the borrower doesn’t have the time to search for deals or work on the paperwork, a mortgage broker is quite useful and necessary.
Access – mortgage brokers are quite skillful and experienced and have a lot of contacts. What this means is that when you use a broker, your chances of finding the best deal that matches your criteria is very high.
Expertise – let’s face it, the lender-borrower industry is quite complex and a little bit confusing, especially considering the rapid fluctuation of interest rates and that mortgage deals come and go. This is to say that having an expert who understands the industry and is able to explain everything clearly can go a long way in ensuring that you have a smooth experience, and therefore, can be invaluable.
What about the disadvantages?
Cost – hiring a mortgage broker is not free, you have to pay for the services. This means that they may be adding to your costs, at a time you are trying to save up as much as you can. The fees vary from broker to broker. But considering the expertise and knowledge each of them brings to the table, it’s totally worth it.
Limitations – the mortgage market is quite broad, and as such, not all brokers will have access of the entire market, which means that relying solely on one broker limits your options. You may even find brokers who may choose a lender just because they have good relations with them, not because they are offering the best deals to the borrower. So, it’s important for the borrower to always ask the broker how many lenders they work with and if they favor certain lenders over others.
Quality – experience, and qualification vary dramatically between mortgage brokers. So, an incompetent broker at best slows the application process, and at worst he will cost you a lot of money if they don’t get the best deal. So, it’s important to vet all the brokers carefully before you hire one of them, and ensure that you get recommendations where possible.