One of the ways that you can get the best deal on your mortgage is to use a mortgage broker – a financial who works to match borrowers up with lenders.
What is a mortgage broker?
Rather than limiting you to one type of loan with one lender, as a regular loan officer might do, a mortgage broker can leverage a wide network of banks in order to give you access to a variety of different loan options. Mortgage brokers can help you determine your eligibility for FHA loans, VA loans, first-time homebuyer programs, sweat equity programs, and other options that you might not be aware of.
What does a mortgage broker do?
The main role of a mortgage broker is to give buyers more choices as they look for mortgage rates to purchase a home. Unlike a loan officer, a mortgage broker isn’t associated one particular bank. This means that the mortgage broker can collect offers from a number of banks, offering you different deals. Brokers can also reduce the required paperwork by filing certain parts of the application on behalf of the borrower.
Why use a mortgage broker?
A mortgage broker works as a middleman between the buyer and the bank. Instead of going into different banks to find out if you qualify for a home loan your mortgage broker will take care of all communication between you and the banks. Those with poor credit, or self-employed individuals who cannot prove their income, often benefit from the network and assistance of a mortgage broker.
You do need to be careful, though. Mortgage brokers are paid by banks, and so represent their interests. Additionally, a Congressional investigation found that home buyers who acquired their mortgage through a broker paid up to $400 more on average during closing costs than did those who dealt directly with a lender.
Mortgage brokers are also rewarded a yield-spread premium for having a borrower agree to pay a higher interest rate for a loan. While many mortgage brokers are honest and work hard to get their borrowers the best deal, there are others who prey on less knowledgeable consumers, jacking up their interest rates, and pocketing extra commissions. As a borrower you should always protect yourself by conducting research outside the broker’s office.
Homebuyers are not limited to working with a single mortgage broker. Just like you would shop for a loan, you should shop for a broker, since different brokers have access to different lenders. By speaking with a few more brokers, you might dramatically expand your mortgage options.