Hiring a mortgage broker can help relieve some of the stress and loan-related questions when you’re buying a house, especially if you’re a first-time homebuyer.
In their role as the middleman between borrowers and lenders, a mortgage broker can help you find a lender that meets your needs and financial requirements, such as a preference for a lower down payment or the best interest rate possible. If you’re seeking a Federal Housing Administration (FHA) or Veterans Affairs (VA) loan, for example, a mortgage broker with experience in working with veterans, or who understands the requirements for FHA loans, can simplify the process.
Variety is another benefit of brokers. Using a mortgage broker can help you find the right lender for your specific needs, especially if your situation in terms of your credit profile or the property is unusual.
“Some (lenders) may specialize in particular property types that others avoid. Some may have more flexibility with credit scores or down payment amounts than others,” says David Reiss, a law professor who specializes in real estate and consumer financial services at Brooklyn Law School in New York and the editor of REFinBlog.com.
Working with a mortgage broker has advantages over going directly to a lender to obtain a mortgage. Consumers can save money during the process, obtain more loan options and have someone explain the fine print to them, which can save time.
The mortgage industry is changing constantly and a good mortgage broker can help a homeowner understand the lengthy process from getting a good interest rate to paying lower fees to closing the loan on time.
A mortgage broker is a mortgage expert who knows how to “navigate today’s mortgage market and to get loans closed,” says Andrew Weinberg, a principal at Silver Fin Capital Group, a Great Neck, New York mortgage company. “They can quickly determine the best lender for each individual borrower.”
WHAT IS A MORTGAGE BROKER?
A mortgage broker works for a lender known as a non-depository institution, says Rick Masnyk, a branch manager at Network Funding in North Smithfield, Rhode Island.
“They provide home financing without having access to the other products that a depository institution or a bank provides,” Masnyk says.
Unlike a bank loan officer who can only offer mortgage products available at his own bank, mortgage brokers have an advantage because they have access to sources of financing from multiple financial institutions, such as JPMorgan Chase and Wells Fargo, as well as other ones that a consumer may not have heard of because they don’t have brick-and-mortar locations within that consumer’s geographic area, Masnyk says.
Federal laws require that mortgage brokers are licensed and cannot have their salary linked to the interest rate you receive from a potential lender. Working with a broker should not impact how much your loan will be.
A mortgage broker can save the consumer time and effort in “locating the best possible loan,” says Jackie Boies, a senior director of housing and bankruptcy services for Money Management International, a Sugar Land, Texas-based nonprofit debt counseling organization.
Part of a mortgage broker’s job is to “do the math” and let a borrower know the loan amount they qualify for to be approved for in a mortgage, Masnyk says.
Mortgage brokers work with homeowners to find a loan program and interest rate to fit their needs, says LeeAnn Casanova, U.S. sales director of wholesale mortgage products for Quontic, a New York-based digital bank.
“They would be responsible for originating the loan and placing the loan with the investor who would fund the transaction at the closing table,” she says. “It is about finding the right mortgage for each unique buyer.”
HOW DOES A MORTGAGE BROKER GET PAID?
A mortgage broker’s fees are more transparent in the aftermath of the Great Recession in 2008.
The cost of the loan is charged to the borrower and the lender purchasing the loan provides a credit equal to that cost, resulting in no cost to the borrower, Masnyk says.
Mortgage brokers get paid in either one of two main ways: upfront at closing by the borrower, or after the transaction closes by the lender. The broker’s fee is a small percentage of the loan amount, usually between 1-2 percent.
HOW ARE BROKERS DIFFERENT FROM LOAN OFFICERS?
A loan officer is employed by a bank or another lender and will be limited to promoting and providing the loan products of their employer only, Boies says. A broker doesn’t have those limitations and works with multiple lenders.
SHOULD YOU WORK WITH A MORTGAGE BROKER?
Homeowners who choose to work with a mortgage broker can receive more in-person interaction and let a licensed professional do the legwork for them, Masnyk says.
“Working with someone you can see face to face and/or someone your realtor has used in the past and trusts is always a great source,” he says. “There’s no reason not to.”
In addition to consulting a mortgage broker, shop around at several mortgage lenders to obtain the best interest rate and term of loan that fits their situation. Whether the consumer chooses to use a mortgage broker or banker is a personal choice. Bankrate’s rate tables are a good place to start your search.
“It’s just as important to shop for the lowest possible closing costs in conjunction with that rate,” Masnyk says. “A mortgage provider may appear to have a great rate, but if their closing fees are excessive, you may not be getting the deal you think you are. What you pay overall in monthly payments and closing fees determines the best possible mortgage program.”
A mortgage broker does the work of shopping around for your mortgage loan to find the best rates, while providing the “deep expertise required to close your loan quickly and efficiently,” Silver Fin Capital Group’s Weinberg says.
Many brokers have access to a powerful loan pricing system that helps price your loan across many lenders at one time.
“They can quickly focus in on the best lenders for your scenario,” Weinberg says. “In most cases, they do not charge the client a penny for their services. Their compensation comes solely from the wholesale lender, and only in the event the loan closes.”
Brokers maintain a large network of wholesale lenders and can provide consumers multiple offers, rather than being limited to the offerings of just one lender.
HOW DO YOU CHOOSE A MORTGAGE BROKER?
Finding a mortgage broker requires a bit of homework: ask for referrals from your realtor, friends and family.
Check their licensing with your state professional licensing authority, read online reviews and check them out with the Better Business Bureau, Boies says.
Check with a couple of different sources and do your due diligence, Masnyk adds.
QUESTIONS TO ASK A MORTGAGE BROKER
Here are questions to ask a prospective mortgage broker:
Can I get your references?
Ideally, you found the broker through a reference from a friend, relative or co-worker. But if you found the broker another way, it’s smart to check on references.
Ask for the names and contact information for the most recent two or three customers who closed loans with the broker. Then call and ask what their experience was like. Did the broker treat them fairly? Did the loan estimate have accurate information? Were there any issues closing the loan? Did the closing disclosure have roughly the same costs as the loan estimate?
Above all, ask if they would do business with the broker again.
How long have you been in business?
How long is long enough? Choose a broker who has been in the industry for at least three years (but preferably more). Ask how much experience the broker has with specific loan types you might be interested in such as FHA or VA loans, for example. You can check to see if they hold the proper licensing to be a mortgage broker in your state through the Nationwide Mortgage Licensing System and Registry.
How do you handle rate locks?
Once you commit to working with a specific lender, you can request a rate lock. This ensures that you receive the same the interest rate you’re quoted for a set timeframe, regardless if rates go up or down. A typical rate lock period lasts up to 30 or 60 days, or you can pay more money to extend the rate lock. Also, you can add a float-down clause, if your lender permits it, within a rate lock that guarantees you a lower rate if rates fall during your lock period.
Ask your broker for a loan commitment letter from the lender. It should have the lender’s name and specify the interest rate and points, the date the rate was locked, and when the lock expires.
(Article written by Ellen Chang)