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Mortgage brokers are more popular than ever and are often a better choice for those who are looking for the lowest possible mortgage rate. When you’re buying a home, the significance of securing the lowest possible rate can’t be stressed enough. Even as little as a 0.1% reduction in your mortgage rate can save you hundreds or even thousands of dollars over the life of the loan.
However, not all is sunshine and rainbows. Besides the potential benefits, brokers often come with certain downsides, too. Keep reading to discover everything you need to know about hiring a mortgage broker and make an informed decision.
A mortgage broker is a financial professional with access to many different lenders, unlike your local bank, which can offer you a mortgage and mortgage rate from their products. Note that mortgage terms and rates vary across states. That means that a standard mortgage broker California provides, for instance, may operate differently than brokers in other states.
When you meet with a mortgage broker, it’s like you have an appointment with credit unions, major banks, and trust companies, but you meet only one person. A broker has access to different mortgage products from various lenders, meaning you have access to these products, too.
If you’d prefer the security of getting a mortgage from a major bank, a broker can also set you up with one. Excellent brokers often receive volume discounts from major lenders, helping you secure a mortgage rate lower than you could negotiate alone.
A broker’s job is to connect you with the ideal lender for your financial situation. Even if you’ve had credit issues in the past or work as a freelancer, a mortgage broker can work with you. Moreover, if you’re facing challenges with getting approved for a mortgage, a great broker may be able to leverage their relationships with lenders to get you approved.
Mortgage brokers have experience in the market and are aware of the tasks required in the home buying process. They typically work in various industries, meaning they have skills in providing the ideal mortgage solutions to various clients.
A mortgage broker has regular contact with many different lenders, some of whom you couldn’t find on your own. Mortgage brokers can help you avoid some lenders with onerous payment terms and conditions buried in their contracts.
However, it’s a good idea to research on your own before your appointment with a mortgage broker. A simple way to get a sense of average rates for the mortgage you want to apply for is to search the rates online. Then, use a mortgage calculator. That will allow you to compare rates and give you additional knowledge when evaluating a broker’s credibility.
Some lenders work only with mortgage brokers and rely on them to bring them fitting clients. These are the lenders you typically won’t be able to contact directly to get a mortgage. Mortgage brokers may also be able to obtain special rates because of the volume of business generated that may be lower than you could get alone.
Taking on a new mortgage or working with a new lender can involve several fees, including origination, application, and appraisal fees. Sometimes, brokers can get lenders to waive some or all of the fees, saving you hundreds or even thousands of dollars.
Ultimately, you want to find a mortgage with low fees and an affordable interest rate. On the other hand, a broker often gets a fee from the lender for bringing him, clients. This fee can be based on the amount of the mortgage and varies among different lenders. So, a broker’s objective is to sell you the mortgage that maximizes their compensation.
Many home buyers assume that a mortgage broker can get them a better deal than they could alone. However, that may not always be true. Some lenders may offer you the same terms and rates that they offer brokers or better. That’s why it’s a good idea to research by yourself to check if your mortgage broker is offering you a good deal.
Brokers get paid either by you or the lender. If the lender covers the fee, you should think about whether your broker is steering you toward a more expensive loan because the broker’s commission is more lucrative.
If you’re the one who pays the fee, calculates it into the mortgage expenses before deciding how good a deal you’re getting. Also, ensure you settle all fee issues before signing anything or starting to work with a mortgage broker.
When a broker first introduces you to the offers from lenders, they usually use the term “good faith estimate”. That means the mortgage broker thinks the offer will embody the final terms of the deal. However, that’s not always the case. Sometimes, the lender may change the terms based on your application, and you may have to pay additional fees or a higher rate.
Some lenders believe a broker-originated mortgage is more likely to go into default than those originated through direct lending. So, if you work with a broker, you may not have access to those lenders, some of whom may be able to provide you with better mortgage terms than brokers.
It can be tempting to consider applying for a mortgage with your bank or directly with lenders. Nevertheless, that can cost you hundreds of dollars if you get a worse mortgage deal than a broker could get for you. Even if you know the mortgage market, you could be missing something brokers don’t, as they have access to more mortgages and special deals.
On the other hand, some lenders don’t work with brokers. That means you wouldn’t have access to the same lenders and deal your broker doesn’t. That way, you may end up missing a great deal because your broker couldn’t introduce you to it.
That said, choosing whether you should or shouldn’t hire a mortgage broker is entirely up to you. Working with a broker has both advantages and disadvantages, so consider everything before deciding. It’s a good idea to do your research, even if you choose to work with a broker, to ensure you’ll be getting a fair deal.