You have narrowed down the search to find your dream house or commercial real estate for sale, and now you are on the search for the best mortgage to put those keys in your hand. A means to do it: work with a mortgage broker who will shepherd you through the complicated lending process from beginning to end.
You have likely heard the term “mortgage broker” from your property agent or friends who have purchased a home or commercial property. But just what is a mortgage broker and what does one do that is different from, say, a loan officer in a bank?
Listed below are five of the most frequent questions about mortgage brokers. Read the answers below.
- What is a mortgage broker?
- How can a mortgage broker get paid?
- What are the advantages of using a mortgage broker?
- Are there any drawbacks?
- How do I choose the right mortgage broker?
1. What is a mortgage broker?
A mortgage broker acts as a middleman between you and possible lenders. The agent’s job is to work on your behalf with different banks to locate the best mortgage lenders who best fit your requirements with the lowest prices. Mortgage brokers have a well-developed list of lenders that they work with, making your life easier.
Mortgage brokers are licensed and regulated financial professionals. They do all of the legwork — from collecting files from one to pulling your credit history and verifying your income and employment — and use the information to apply for loans on your behalf with different lenders in a limited time frame.
Once you settle on a loan and a lender that works best for you, your mortgage broker will collaborate with the bank’s underwriting department, the closing agent (normally the title company), along with your private or commercial real estate agent to maintain the trade running smoothly through final day.
2. How can a mortgage broker get paid?
Like most sales professionals, mortgage brokers charge a commission for their services. They generally charge a “loan origination fee,” which is about 1 percent of the loan amount and is paid by the borrower at closing.
Sometimes, though, mortgage brokers negotiate no-cost loans so you do not have to shell out additional cash up front; the agent will instead be paid by the lender after the loan closes. However, picking a no-cost loan to minimize your out-of-pocket expenses means you will pay a higher rate of interest, which costs more over time.
So what exactly makes loan officers distinct from mortgage brokers? Loan officers are employees of a creditor and are paid a set salary (plus bonuses) for composing loans for that creditor. Mortgage brokers, who operate inside a mortgage broker company or independently, deal with many lenders and make the majority of their money via commissions, the bigger the amount of the loan, the greater the agent’s commission will be.
3. What are the advantages of working with a mortgage broker?
A mortgage broker does all the work for you, and that is the biggest advantage as they are high quality advisors in the industry. The agent applies for loans with unique creditors on your behalf, finds the lowest mortgage rates, negotiates terms and makes the acceptance magic happen.
Most mortgage brokers have connections with several local, regional and even federal lenders, and they’re able to tap those connections to find some loan fees payable for you. A mortgage broker will provide you one-on-one attention you probably won’t find when working directly with a loan officer at a large bank, and understands the importance of investment.
Another perk: some lenders and banks operate exclusively with agents, and that places one to get qualified for specific loan products if your mortgage broker has a fantastic relationship with those creditors.
You’ll also save time by using a mortgage broker; it may take hours to apply for different loans, and then there is the back-and-forth communication involved in underwriting the loan and ensuring that the transaction stays on track. A mortgage broker can save you the trouble of handling all those daunting details.
4. Are there drawbacks?
It costs about 1 percent of your loan amount to cover a mortgage broker to shop lenders for you and help in processing your loan. To put it differently, if you are borrowing $300,000, you can expect to pay roughly $3,000 in loan origination charges to your agent. But if you’re considering shopping for creditors yourself, bear in mind that it requires a whole lot of time, effort, communication and savvy to navigate the intricacies of the procedure and you may end up wishing you had a trust advisor by your side for the process.
Using a broker may also narrow your accessibility to large lenders. In the wake of the housing meltdown, some big banks stepped away from wholesale mortgage lending and ceased working with mortgage brokerage businesses.
You can get around this potential roadblock by working directly with an individual lender, particularly if you already do your personal banking with that creditor. Who knows? You might have the ability to negotiate better terms and a lower rate, having said that, brokers are able to comb the market to offer you many different loans to select from. If you go straight to a bank yourself, you’ll be restricted to the products the bank offers.
If you go your own way, contact at least three lenders; do not automatically just take the first loan offer.
5. How do I select the ideal mortgage broker?
The best way is to ask friends and relatives for referrals, but make certain the talking buddy has actually used the agent and is not just dropping the name of a former college roommate or remote acquaintance. Learn everything you can about the agent’s service, communication style, level of knowledge and approach to customers.
Another terrific referral source: your realtor. Ask your agent to give you the names of a few agents that he or she has worked with and trusts. Some real estate businesses provide an in-house mortgage agent as part of the package of services, but you are not required to go with that business or individual.
To select the right mortgage broker, it is wise to interview at least three people to learn what services they provide, how much experience they have, and how they could simplify the procedure. Do not forget to check your state’s professional licensing authority to ensure they have current mortgage agent’s licenses in good standing. Additionally, scope out online reviews or check with the Better Business Bureau to make sure the agent you are considering has a sound reputation.