Working With A Mortgage Broker: What You Need to Know

Written by Posted On Tuesday, 05 May 2020 13:32
Why Should I Use a Mortgage Broker? Why Should I Use a Mortgage Broker?

Why Use a Mortgage Broker When Buying a Home

Are you wondering if you should use a mortgage broker to get financing to by a house? You are not alone. Over the years lots of people have asked me what the benefit of using a mortgage broker is vs using a standard lender.

Once you've started your home search, you're going to need to find the right mortgage before putting up your down payment. You can apply to lenders or use the assistance of a mortgage broker to guide you to a better loan.

The mortgage broker option can seem like an attractive choice, but what do they offer to homebuyers, and how do they differ from applying to a lender?

Let's take a deep dive into why you may want to get your home financing through a mortgage broker.

How are Mortgage Brokers Different?

The mortgage broker will work with you to find the best fitting loan from several different lenders. They will have banks that they operate with and can make your life easier by finding you better interest rates.

Here are a few examples, so you understand what I mean:

  • Scenario #1 - you know that you're interested in building your own home but don't want to do it right away. You want to buy land, hold it, and then construct the house two years from now. In this situation, you're best bet will be to get land financing. A mortgage broker will be able to look through their portfolio of lenders to see who has the best terms for land acquisition.
  • Scenario #2 - your job has just relocated you across the country. Your employer has told you that your assignment will last five years, and more than likely, you will be transferred again. Given the time frame will be five years, you may want to opt for an adjustable-rate mortgage if the interest rate is lower than a fixed rate. There is no sense in getting a long term mortgage if you're sure you'll be moving again. Again, this is another situation where a mortgage broker can be an immense help. They will be able to seek out the lenders who have the best terms and conditions for variable-rate mortgages.
  • Scenario #3 - You have made up your mind that you would like a fifteen-year mortgage. The interest rate is lower, you have the ability to make larger mortgage payments, and you want to have your loan paid off quicker. A mortgage broker can seek out and find the lenders who have the most competitive fifteen-year mortgages.
  • Scenario #4 - The home you are in now was purchased around three years ago. During that time, interest rates have become more favorable. Secondarily, you have gotten a strong desire to add a two-car detached garage to your home. Everything has become aligned perfectly where it makes sense for you to refinance your mortgage—another excellent example of how a mortgage broker can help you make the best decision for your needs.

As you can see, a mortgage broker will do all of the heavy lifting to find the lender that best accomplishes your financial goals.

When you apply with a mortgage broker, they will check your income and employment, to use in mortgage applications (just like any other lender would). They will help get the documents you'll need to apply and check your credit history as well. Mortgage brokers have to be regulated and accredited to ensure that they are acting in a reliable, trustworthy manner.

Once you find a loan that meets your requirements, your broker will work with their underwriters to make sure things go as planned. They can also work with other professionals in the home buying process to ensure any problems are dealt with quickly.

An exceptional mortgage broker can also provide tips such as how to save for a down payment if you that you're not quite ready to purchase a home.

How do Brokers Earn Money?

The mortgage broker that works on your behalf will usually be paid commission from the lender. The broker will typically earn somewhere between 0.50 and 2.75 percent of the loan amount. Brokers aren't allowed to make more than 3 percent in commission and fees by law.

As a borrower, you can choose to pay the broker directly. This will mean that they don't earn money from the lender, and this is known as borrower-paid compensation.

When you are looking to hire a mortgage broker, you should check what their compensation rate is for lender and borrower-paid. They may well be the same, but you should check to make sure you are getting the best deal.

The Difference Between Brokers and Loan Officers

The bank will employ loan officers to assist borrowers in the loan application process. They are paid by the lender as an employee on a salary. They may earn bonuses as well, from signing home buyers up to a loan.

Mortgage brokers, on the other hand, are frequently only paid from the commission and fees they get when helping a borrow find a suitable mortgage. They may work in a brokerage firm or independently, making most of their earnings from lender-paid compensation.

Choosing the Best Mortgage Broker

Using a broker to find the best loan for you, can save you time and get you a better deal on your mortgage than you otherwise might get. Applying for loans can take a fair amount of time, particularly as you need to apply to multiple lenders to find the best rate. The broker cuts down on the work you need to do and gives you assistance in the process, which could be very valuable to you.

There are going to be lender fees involved whether you choose to use a broker or not. You need to pay attention to the charges so that you can compare what is being offered and better assess what is right for you.

When you are looking for a broker, friends, or family might be able to recommend someone to you. But you need to make sure that it is someone they have actually worked with rather than just a friend of theirs.

Your real estate agent may offer you the name of a broker that they think does a good job. Sometimes the agency will have a mortgage broker service themselves, though just because you are using their real estate agent services, you aren't obliged to use their mortgage brokerage as well.

To make sure you get the right broker, you need to compare the services they offer. Consider the mortgage broker to be an entity just like any other lender. Comparison shopping is of the utmost importance. This way you will be better able to judge the experience they have and how they can help in your home buying process.

When you have one which seems best, make sure to check with the state's licensing agency to confirm that they have a current license. Check what previous customers have said about them in online reviews as well.

Final Thoughts on Why You Should Choose a Mortgage Broker

Finding the right mortgage broker could save you time and money on your mortgage application. They should be able to make your home purchase a less stressful experience. A mortgage broker should also put you in the best position to pay less over the next two or three decades of your mortgage.

Hopefully, you have enjoyed what a mortgage broker does and why they are different than a typical lender. You should also understand why you may want to use a mortgage broker vs. going with a typical lender.

About the author: The above article about working with a mortgage broker was written by Bill Gassett. Bill is a nationally recognized Real Estate leader who has been helping people buy and sell property in the Metrowest Massachusetts area for the past thirty-three plus years. Bill has been one of the top RE/MAX Realtors in New England for the past decade-plus. His blog, Maximum Real Estate Exposure, is the most visited real estate agent website in the US.

His real estate advice has been featured on CNBC, RIS Media, National Association of Realtors, Today.com, Inman News, Placester, Credit Sesame, and others.

Bill covers real estate sales in the following Massachusetts communities: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton and Uxbridge MA.

Reach out for Bill's advice anytime you need it.

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Bill Gassett

One of the top RE/MAX agents in New England over the last decade plus. Providing exceptional real estate services to buyers and sellers in the Metrowest Massachusetts area including the following communities: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton and Uxbridge MA.

See my real estate website at Maximum Real Estate Exposure - one of the most visited real estate sites in Massachusetts.

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