It seems like entering the housing market today gets more and more stressful with inflation and mortgage rates on the rise. If you are buying a house for cash you are in luck, because many people have to choose a lender and get through an application process.
Choosing a lender depends on many factors, such as your annual income and credit score, as well as the amount of money you need for the property. There is no shortage of lenders of different types, such as banks, credit unions, and other entities that create and fund mortgages.
It can be overwhelming for a borrower to rummage through all those organizations and that is when a mortgage broker comes in handy. They are professionals who serve as a link between a direct lender and an individual asking for a mortgage.
Do You Need a Mortgage Broker?
You might ask, can’t I just go to the bank and ask for a mortgage myself? And the answer is yes, but mortgage brokers will work with multiple lenders on your behalf and try to find the best option for you.
They are there to save you the trouble of studying the professional terms in mortgage contracts and many of them have exclusive deals with lenders that offer special rates. Also, due to work deals between lenders and brokers, working with a mortgage broker could save you money in different fees that you would otherwise have to pay.
However, it is not so easy to choose the best mortgage broker in your specific situation. For instance, it can be challenging to find the best mortgage broker Los Angeles can offer because there are so many. The same goes for any major US city. Similarly, it can be challenging to pick and choose a broker in rural areas.
So it is advised not to go for the only option you have at your disposal, because, without competition, some brokers may not work in your best interest. In those cases maybe it is better to go to a direct lender.
Additionally, if you are in a tight financial situation, you should know that some mortgage brokers take a broker fee, that could either go into your mortgage payment or you can settle it upfront. However, if you do not have an ideal borrowing situation, but do not want to buy a fixer-upper house, a mortgage broker could help present your case in a more appealing way.
Usually, mortgage brokers offer several services, including FHA loans, VA Loans, and some unique programs for those with a smaller credit score or annual income. But primarily they offer regular, conventional mortgages, as well as jumbo loans for those with higher income.
A regular or conventional loan is a conforming mortgage whose values depend on the Federal Housing Finance Agency. A conventional mortgage is securitized by Fannie Mae and Freddie Mac, so the application process is less rigorous. If you have an average income, credit score and your wanted house does not exceed the FHFA limit, your chosen broker will probably suggest you take out a regular mortgage.
Your broker is in some way your financial advisor because they will look into your household’s economy and consult you about your options. So if you don’t fit into the Standard loans’ requirements, they will find a mortgage suitable for you.
Does your dream house fit outside the FHFA approved limit, but you don’t have the liquid assets to pay cash? Well, jumbo loans may be the solution for you, but only if you have an outstanding credit score history and a secure, high-paying job.
A jumbo loan is used to buy luxury properties, and their minimum limit changes every year, following the trends in the housing market. This mortgage is a much bigger risk for the lenders, and since it is not securitized by any government agency the regulation for jumbo loans is very strict. When in search of a jumbo loan lender, consulting with a broker can be of great help.
If you are in search of a mortgage broker to help you find the appropriate loan and lender, follow the next few tips to make your selection easier.
Play the Feild
Do not sign anything before you check the competition, that is the saying that goes when choosing your mortgage broker. When someone works on your behalf, you have to trust they have your best interest in mind.
Contact more than two brokers in your area and compare the fees, how they collect them, as well as the service they provide. If it is important to go through the process online, check if they have a developed platform that will make it simple for communication.
The biggest benefit of working with a broker is that they have a large network of lenders, and can connect you with the one meeting your needs. Compare the number of lenders affiliated with that broker or his company. If a broker has only a few lenders under their belt, it is more likely that they will work on the lender’s behalf rather than yours.
Brokers usually save you some money on mortgage fees, but you should compare how much will they save you, versus how much will they collect in fees. The end result can vary a great deal, so compare that number from multiple sources.
Check Their Compensation
There are a few ways a mortgage broker can collect their commission. Knowing how they earn their money can save you from fraud or being manipulated into buying a more expensive home. There are brokers who get paid directly from the lender, and those who collect their commission from the borrowers.
Borrowers have to pay a commission fee at closing, that cost is ranging around 1%-2% of the mortgage worth. To make it simple, if you buy a home for $400.000, you have to be prepared to pay at least $4.000 after you’d close the deal.
If the money comes from the lender, you are actually paying a monthly installment in conjunction with your loan payment. Sometimes it is a combination of both fee structures, you would have to pay certain fees upfront while the rest get paid through your monthly mortgage payments.
Look into Their Qualifications
Every country has different regulations for real estate or mortgage brokerage, but in Australia only those who are qualified but completing and receiving a Certificate IV in Finance and Mortgage Broking can practice as a broker. Although it is not necessary, they should be educated in the field of economics and finance. Education is not always a safe bet, but you should strive for perfection when looking for someone who will negotiate your mortgage on your behalf.
Experience is an important qualification, so check how long they operate and their professional history. Are there statistics on their previous closings and clients’ satisfaction? Is there something on the Internet that suggests fraud or taking advantage of people? Knowing the answer to some of these questions can save you a lot of trouble and frustration.
Check Reviews Online
A simple Google query about a potential broker can decide whether or not you pick someone. There are many slander campaigns on the internet, but if a broker is low-rated for a long period it should tell you that something is off.
Some people even write in detail the treatment they got, if they were respected or manipulated. Knowing the past experience of people that did business with a broker you are planning to choose can prepare you for the good and the bad.
Know What You Are Talking About…
…or at least pretend. The final step you have to overcome when talking to a broker is to seem confident and not easily deceived. Remember that their commission depends on your loan’s value, so avoid the brokers who insist on you taking out a bigger mortgage than you first planned.
Having a trustworthy broker means having a respectful, honest and fair business partner and advisor, who guides you through a stressful mortgage application with your best financial interest in mind.