What Is a Mortgage Broker?
If you’re looking to buy a home, you’ve probably got a lot on your mind. Buying a place to live permanently, is a stressful experience. Especially if you’re not used to picking out mortgage terms and deciding which ones are best.
A mortgage broker takes this process out of the customer’s hands, lending out their years of expertise in the field of mortgages and financing to find a mortgage with terms that fit your budget and needs. Mortgage brokers are mortgage-finders for hire, and they can help consumers navigate the world of home mortgages.
But the name of the game for mortgage brokers isn’t all helping people and finding the best deals. It’s also about making money and finding ways to advance position in the mortgage market. That’s why people are often so dubious about mortgage brokers.
So, what is a mortgage broker? What makes for a good one? How can you tell which one is right for you and which you can trust? In this article, we’ll discuss all these things and more, hopefully hitting on a few of your most pressing questions and assuaging some worries along the way.
What Does a Mortgage Broker Do- In-Depth
So, now that we’ve got the surface-level overview of the situation let’s talk a little bit about the deeper aspects of mortgage brokering and how it’s done.
If you’re just starting to look for a mortgage, you might be coming into contact with terms you’ve never heard before. Learning these terms and the mathematics associated with them, as well as what all that implies for the house you want to buy and how to find the best deal, can be exhausting.
In come the brokers.
Brokers work as an efficient way to bridge the gap between experience and understanding and home-buying. By taking their years of education and training and applying it to your specific financial situation, mortgage brokers can find the best deal for you.
What a mortgage broker does is very simple- he or she brings to the table all possible deals and sorts through them to find out which one will work out to be the most manageable in the long run.
Not only that, but you’ve probably noticed the abundance of pesky documentation needed to actually secure a mortgage. A mortgage broker takes your financial and personal information- with your permission, of course- and passes it on to the lenders on the other end, finding you more offers while qualifying you for these offers at the same time.
Once brokers find the loan with the highest overall value, they take their borrowers through the process of securing the mortgage and only take out a fee once the process is finished.
The origination fee, or the broker’s commission on the brokered loan, is how the broker gets paid. A broker’s customer may be responsible for the full fee, or a portion of the fee. These fees are calculated as a percentage of the overall loan amount. For example- an origination fee of 3% on a $100,000 loan would be $3,000.
Who Needs a Mortgage Broker?
Finding a mortgage broker can help you navigate through the pitfalls of securing a loan, but if you’re confident enough with finances to secure a loan for yourself, you might not want to enlist a broker at all.
Mortgage brokers are primarily for people who don’t have the time or energy to do the in-depth research to find optimum mortgages for themselves. They also help people with their industry experience- enlisting their connections in the industry to qualify customers for ever-better loans.
If you don’t feel confident navigating the world of mortgages and lending, you might find yourself in need of a mortgage. Settling on a bum mortgage may make you prey to possible bad lending terms and smarmy bank practices.
Keep in mind, though; a mortgage broker is not cheap. No matter your budget, a mortgage broker will be a pretty significant investment, and the origination fee only grows as the price of the home you’re buying goes up.
Therefore, people who aren’t confident with their ability to navigate the world of money lending and see themselves through to the conclusion of a deal- who also have enough money set aside to do so- are the best candidates for hiring a mortgage broker.
Beware – Risks and Rewards of Hiring a Broker
By this point, you may be pretty pumped to hire a mortgage broker. Take some of the work off my hands? Do the hard part for me? Count me in! But, we’d advise you to stop and take an inventory of the advantages and disadvantages of hiring a mortgage broker.
A broker is a human being, just like everyone else. It would be great if we could get computers to do our brokering for us- thus relying only on cost over time and overall loan value to choose our best-fit loan- but technology hasn’t come that far.
Many mortgage brokers engage in slimy practices- like the ones that got so many people into deep, deep trouble during the 2008 financial crisis. We’d definitely recommend the movie The Big Short for a realistic look at mortgage brokers and their possible motivations.
If you don’t have enough time for a movie on your hands, though, here are a couple of advantages and disadvantages to hiring a broker.
Most sites choose to start with the advantages of hiring a broker. When asked, “Do you want the good news or the bad news?” will ask to get the bad news out of the way first. So here are a few disadvantages to hiring a broker:
- Broker may have external interests. While we’d love to believe that the brokerage business is a helpful and concerned environment, looking out for its customers’ financial health, we also understand that mortgage brokers are people who want to make money. Mortgage brokers may be tempted to put their profits or the earnings of their firms over your financial health.
- Trust for brokers is dwindling. As of late, many lending businesses have decided to stop doing business with brokers since loans negotiated by brokers tend to go into default more often than others.
- Technology is eclipsing the need for brokers. In the old days, securing the best loan relied on an in-depth knowledge of the mortgage industry. People looking for the best terms on mortgage benefitted from having connections with companies and experience with a vast array of offers. Now, all these offers are readily available on the internet.
While these disadvantages may seem pretty persuasive, keep in mind that there are still reasons why people choose to hire mortgage brokers. Here are a few advantages you can get from your mortgage broker.
- Mortgage brokers can navigate pesky fees. While mortgage brokers do incur an origination fee on top of your mortgage, they may be able to get lenders to drop fees included in their mortgage contracts. This can save you money and get you one step further on the path to a financially stable home.
- Mortgage brokers take the research out of your hands. If you’re not experienced with financial matters, you probably aren’t familiar with the jargon found in a mortgage offer. A mortgage broker will understand all of this on-sight and will be able to navigate the mathematics of lending without doing hours of research, freeing you up to lead your everyday life.
- Brokers accumulate knowledge of the industry. By keeping up with mortgage trends and finding unique mortgage offers, mortgage brokers offer a brand of experience that ordinary people just can’t bring to the table.
How to Choose a Mortgage Broker
Now you have all the information you need to decide whether or not to hire a broker. Use this handy checklist to decide what factors to consider most closely when choosing a broker.
1. Look for Affordable Fees
While your grandfather likely told you that a higher price means higher quality. This rule doesnt always apply. There are some brokers out there who combine high skill with low rates to reel in the most customers. Make sure to balance fees with other important indicators to decide which broker will reel in the best value.
2. Look to Former Clients
Former clients are to brokerages as reviews are to restaurants. Ask to speak to a former client. Or look for them online to determine how a brokerage has treated its clients in the past. This is an excellent indicator of how they might treat you.
3. Research Your Brokerage
Some brokerages have sketchy pasts. Doing a search on google and finding information customer feedback also gives you valuable insight. It teaches you about their service quality and customer service standards. Never doubt the power of an hour of research.
Make Sure Your Financial Health Is in Order
Before you even set out to find a broker, make sure you’ve got your finances in line.
Getting yourself financially stable will help you secure the help of better brokers and get a better mortgage.