Maybe mortgage broker is a term you’ve heard in your travels, but you’re unsure how it fits in with your plan to buy the home of your dreams. Well, for those just learning about mortgage brokers, good news: You’re probably about to find out that you can get more for your home-buying buck at a lower interest rate.
Mortgage brokers work for you and help you negotiate what can often be a minefield when it comes to financing your home. Here are the top five things you need to know about mortgage brokers.
A Mortgage Broker Is a Middleman Working For You
A mortgage broker’s job can basically be described as a middleman working in your service to find the best mortgage possible. Rather than navigating the morass of mortgage lending on your own, a mortgage broker does it for you. Because they literally do nothing but find mortgages for customers like you, you can rest assured that they know how to find the best mortgage products at the most competitive rates available.
Another thing they do for you? Legwork. There’s tons of paperwork involved in getting a mortgage. The mortgage broker does it all for you. They’re going to apply for loans for you in a compacted time frame that allows you to evaluate several of the products they get in your name.
In general, mortgage brokers differ from loan officers because they work for you, not for lenders.
They Get Paid on Commission
Of course, the fact that they’re working for you means you have to pay them. The standard mortgage broker fee is 1% of the loan, though it’s not unheard of for the mortgage broker to negotiate a no-fee mortgage for you. In this case, “no fee” would mean you wouldn’t be paying for their services — the bank would.
If you pay a loan origination fee, you’re going to have to come up with that cash at closing. Otherwise, the fee might be rolled into the loan — which means “no fee” mortgage brokers tend to cost more over the life of the loan, because you’re paying interest on it for years.
A Mortgage Broker Is Sort of Like a Loan Concierge
That 1% fee might be a bitter pill to swallow, but consider the following: Not only might they save you money on the life of the mortgage by negotiating a lower interest rate, they’re also valuable when it comes to processing the loan.
You’re going to get way more attention from a mortgage broker than you will from a bank’s loan officer. What’s more, they’re going to do a lot of the stickier work of getting a loan that you’d gladly pay someone to do on your behalf. And in some cases, the broker might work exclusively with a handful of banks, allowing them access to special rates and perks that you won’t get on your own.
Besides the Fee, There’s Not Much Downside
Paying 1% of your loan — that’s $2,000 on a $200,000 mortgage — to cover the cost of a mortgage broker is certainly a bummer. But everything worth something comes at a price, and a good mortgage broker can make your life easier and recoup the fee (or more) by finding a better mortgage rate than you might on your own. And if you struggle with the complexities of what is a pretty complicated industry, a good mortgage broker can help you avoid mistakes and steer you in the right direction.
Still, the more ambitious home buyers out there could act as their own DIY mortgage brokers, researching rates and terms and getting quotes from five or more banks and lenders, whether in person or online. It just takes an awful lot of hustle at a time when many people are already stretched thin from a grueling house hunt.
In addition to the cost, there are a couple of other minor downsides. As we mentioned above, a mortgage broker might only work with a small network of lenders. In that case, you won’t get access to deals that might exist outside that small network. And many lenders have stopped working with mortgage brokers in the wake of the 2007-2009 housing bust, preferring to keep their loan business in house.
Referrals Are the Best Way to Find One
The best way to find a mortgage broker is to ask friends and family who have had a good experience. Don’t just go with an old frat buddy of theirs. Instead, listen to people who have actually worked with mortgage brokers in the past. See what they have to say about their experience. You’ll want to know about the broker’s level of service and communication style. Your real estate agent can be another great resource when it comes to picking the right mortgage broker. Interview three brokers before you make a decision.
While there’s no magic to what a mortgage broker does – and you could do much of it yourself if you’re motivated to – they can help you save money over the years, stretching your home buying dollars further. If you’re in the market for a mortgage, it’s worth at least exploring this avenue before jumping into a 30-year loan from your local bank.