Local Mortgage Brokers
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What Is a Mortgage Broker, and Should You Use One?
A mortgage broker can make your mortgage search much easier, but is it really necessary?
If you’re thinking of buying a home in the near future, chances are good that you’ll need to obtain a mortgage. When doing so, you have two basic options — deal with banks and other lenders directly, or hire a mortgage broker to do the hard work. Mortgage brokers aren’t as abundant as they once were, but are still a sizable part of the mortgage marketplace. Here’s what you need to know about mortgage brokers, and whether you should use one.
What is a mortgage broker?
Simply put, a mortgage broker is a middleman between a homebuyer and mortgage lenders. The mortgage broker will assess the borrower’s finances, find appropriate mortgage products, apply for pre-approvals, gather necessary documentation, complete applications, and advise clients on the right mortgage products for them.
Mortgage brokers make their money by charging origination and or broker fees, which are paid when the loan is originated (at closing), and typically fall in the 1% to 2% range per loan. Before the subprime mortgage crisis, mortgage brokers had a large share of the market — up to 68% by some estimates. However, the crash saw many of the larger lenders exit the wholesale mortgage market, essentially cutting the supply of loans to brokers. Nowadays, only about 10% of mortgages are originated with the assistance of mortgage brokers.
Many people automatically have reservations when it comes to hiring an additional professional to help with their home search — after all, before the process is done, you’ll probably pay a real estate agent, home inspector, and lawyer, just to name a few. Plus, a mortgage broker really doesn’t do anything you’re incapable of doing yourself.
Advantages of Local Mortgage Brokers
Having said all of that, why would you hire a mortgage broker? Here are some of the potential advantages of bringing a middleman into your mortgage search.
- They’ll do the rate shopping for you: This is unquestionably the biggest advantage of hiring a mortgage broker. Too many homebuyers simply obtain one mortgage quote from a bank and accept it, even though you can apply for as many mortgage quotes as you’d likewithout adversely affecting your credit. Even a small difference in mortgage rates can save you thousands in interest over the life of a mortgage, so it’s certainly worth it to shop around.
- The problem with this, as anyone who has been through the process can tell you, is that mortgage applications can be long. Applying for five different mortgage pre-approvals can easily take the better part of an afternoon to do. With a mortgage broker, all of this legwork is done for you.
- More accessible than bank loan officers: Just like your real estate agent, the mortgage broker works for you and doesn’t get paid unless you close your loan. For this reason, mortgage brokers tend to be more accessible to buyers than bank employees. So, when you have questions along the way, it’s generally easier to get the answers you’re looking for from a broker.
- Some lenders work exclusively with brokers: I mentioned already that some of the big banks don’t work with brokers anymore. Conversely, there are some mortgage lenders that only work with brokers. So, your mortgage broker could have access to loan products that you don’t.
- Could get lenders to waive some fees: Mortgage brokers can often get lenders to waive some of their fees, such as application, appraisal, and origination fees.
Source: Fool.com
Common Questions About Local Mortgage Brokers
Question:
How Do Mortgage Brokers Get Paid?
Answer:
When you use a local mortgage broker for your home loan, they can be paid one of two ways. Mortgage Brokers are paid either directly by you, or by the lender they place your loan with. Normally, your local mortgage broker will be paid by the lender to reduce out of pocket expenses for you during your home purchase or refinance. A mortgage broker’s compensation by a lender is not dependent on you being charged a higher interest rate. Mortgage rates are set competitively in advance and any increases to rates will result in credits towards your closing costs if you choose to go that route.
Question:
Can a Local Mortgage Broker get you better mortgage rates and lower closing costs?
Answer:
Local mortgage brokers either have access to thousands of lenders and they can find you deals, or they are tied to specific lenders and they may be able to get you an exclusive deal. Ultimately, you are probably more likely to get better rates with amortgage broker than without.
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