There’s very little that more exciting than buying your first home. But it’s an overwhelming process, to say the least. You have to find a home, you’ve got to get your finances in order, and you’ve got to know how to find a mortgage broker.
There are a few things you should know before signing a contract with a broker. We understand that it can be a bit daunting, but it doesn’t have to be an insurmountable step. Let’s take a look at a few things you need to know before hiring a mortgage broker.
What is a Mortgage Broker?
You can get your own mortgage. There are a multitude of websites just for this purpose. Homebuyers can apply through banks, through government websites or through mortgage companies. Heck, even businesses like Quicken have mortgage products.
But a mortgage broker is not a lender. A mortgage broker serves as a liaison between you and lenders, and can make the process a bit easier for you. A good mortgage broker is an expert in her field, and knows about private loans, FHA loans and can even direct you to nonprofit organizations which may help you. She’ll work with you to study your financial situation and determine what kind of loans and interest rates you may qualify for.
Once you’ve collaborated with a mortgage broker, the application process is simple. Because she’s an intermediary, she’ll help you to collect your financial information and any supporting documents you may need. And then, she’ll apply for your loan on your behalf. In short, your mortgage broker is like a one stop shop for all your home loan needs.
Do you Need a Mortgage Broker?
No, you do not. Again, you can choose to apply for loans on your own. If you’re a homebuyer with good credit, this process might be simple for you to navigate on your own.
But there are situations in which it may prove difficult to find or get approved for a loan on your own. First, if you’ve got less than perfect credit, or no credit at all, getting a mortgage can be extremely difficult. Banks take home loans seriously; you’ve got have a history of ability and willingness to pay, and if you’ve got negative remarks on your credit report, you’ll likely face trouble.
Secondly, if you’re self employed or a contractor, getting approved for a mortgage can be a bear. Banks like to see a paycheck – whether it’s a huge commission check from real estate sales or a biweekly paycheck from your full time job, you’ll need to show proof. A mortgage lender wants to see a full time paycheck deposited into your account regularly. Self employed people don’t have this luxury. But if you’ve kept good records, a mortgage broker can help you convince the banks that you’ve got the ability to pay despite the lack of direct deposit.
Third, first time homebuyers can find the process of finding a loan exhausting. There are a huge number of programs available to first time homebuyers, whether it’s tax incentives or reduced interest rates. It may seem that it’s impossible to find the program which will be the most beneficial to you, but a mortgage broker knows the programs well. She can help you find the right match for your situation.
How to Find a Mortgage Broker
Whether your credit score is a 640 or an 840, you may find that enlisting the services of a mortgage broker is the right decision for you. But how do you do it? What should you look for?
First of all, the number of mortgage brokers has decreased significantly. A large factor in this is the existence of so many online products. Consumers now have a “DIY” mindset, and want to feel that they’re getting the best deal. So they shop around and eventually settle on what they think will work best for them.
But brokers do still exist. Today, about 10% of all mortgages originate from a broker, and there are definitely pros and cons to hiring one. The first thing you should research is the certifications of your broker. Check with the National Association of Mortgage Professionals if you’re in the United States, or with the FSA in the UK. She should be registered and licensed to avoid complications later.
Secondly, shop around for mortgage broker fees. All mortgage brokers get paid a percentage of the loan amount that you secure. It’s usually 1-2%, but be sure to check before you hire a broker. Some brokerages will also charge a broker fee, but this is less likely if you hire an independent mortgage broker.
Third, as always, check her reputation. Always! We can’t stress this enough. You should interview your broker, and ask her about her past closings – what were her points? What were her fees? And then keep asking questions. Check out reviews online and ask them the same questions. Make sure you fully understand the terms of her service before you hire her.
Pros and Cons of Hiring a Mortgage Broker
We’ve mentioned a few of the benefits of hiring a mortgage broker. If you’ve got an unconventional job or if you’ve got a lower credit score, a mortgage broker can help. Similarly, if you need help finding which is the right type of loan for you, she can be a great asset. And in addition to that, some brokers may have exclusive access to desirable lenders. This access could qualify for a loan that you wouldn’t otherwise be able to secure.
But there are drawbacks, as well. There are always fees associated with home buying. You’ll pay closing costs, realtor commissions and inspection fees. Adding a brokerage fee or another commission to the debt can be a setback. And while some brokers have exclusive access to lenders, some lenders refuse to work with brokerages at all. Banks and lenders have determined that broker-originated loans are more likely to result in default.
Hiring a broker can possibly be advantageous to you, and will definitely make the loan process easier. But before you hire, be sure to weigh the pros and cons. And should you decide to enlist a broker, do your research and work with a reputable company.