When you’re buying a new house, finding the right mortgage loan for your situation is a big job.
You want to find a loan program that fits your lifestyle and financial needs. Plus, you want a good deal because it could mean huge savings on interest over the life of the loan.
Shopping around for a loan can be time-consuming and frustrating. One way to cut down on some of the time spent shopping around is to use a mortgage broker during the home buying process.
When I bought my home almost 10 years ago, I used a mortgage broker. I found it helpful to have someone who could access a variety of loans. My broker helped me narrow down the best options to the top three, and explained the pros and cons of each.
I ended up going with an FHA loan. As a first-time homebuyer with a small down payment, I found the FHA loan met my needs.
If you are hoping to get a little help with the legwork involved in buying a home, a mortgage broker might be the ticket.
What is a mortgage broker?
“Mortgage brokers are on your side,” says Casey Fleming. He’s the author of The Loan Guide: How to get the Best Possible Mortgage and a 37-year veteran of the home financing business.
Fleming explains that a broker’s job is to do the shopping around for you. A broker is an independent professional who works with multiple lenders to present you with a wider variety of home financing options.
“Loan officers work for a bank,” Fleming says. “They can only offer loan products from that bank. Brokers have to be licensed and they work with several lenders so you can potentially find better deals.”
Mortgage brokers help you through each step of the financing process, from preapproval to closing the loan. Not only that, but a mortgage broker acts as a liaison between you and all the other professionals involved in the mortgage process. This includes escrow officers, title companies, and others. A broker can help coordinate everything and work with your real estate agent for a desired outcome.
Plus, a mortgage broker can help you find alternatives when you have a tough financial situation. “If the deal doesn’t work in one place, chances are a mortgage broker can find an alternative,” says Fleming.
How do mortgage brokers get paid?
“A mortgage broker doesn’t get paid unless you get the deal,” says Fleming.
According to the National Association of Realtors (NAR), mortgage brokers charge a fee. That fee can be paid by you, as part of your loan’s cost, or it can be paid by the lender. NAR says that a typical broker fee is between one percent and two percent of the loan amount.
Other fees charged by the broker must be disclosed and itemized. NAR says that a mortgage broker should be able to tell you exactly what each fee is for. On top of that, the Dodd-Frank Act forbids brokers from tying their pay to the home loan interest rate. They also can’t receive pay for sending to an affiliated business.
Fleming points out whether you choose a loan officer at a bank, use the internet to look for a loan, or work with a mortgage broker, there are fees involved with a home purchase. You likely won’t pay higher fees with a mortgage broker than by going directly to the lender. In some cases, a broker can even get a lender to waive some of its fees.
When to use a bank instead of a mortgage broker
While a mortgage broker can be a great resource when you’re buying a home, there are times a bank can be better. Fleming says that sometimes banks and credit unions have specific programs they offer to customers.
This is especially true if you qualify for client services. “If you have at least $500,000 in liquid assets, you might be able to approach a bank’s private client services and get better terms,” says Fleming.
But that’s not the only way to get the best from a bank. If you have a long-standing relationship with the bank or credit union, you might get access to better terms and better service on a home loan. “It pains me to say it, but sometimes banks can be faster in getting the deal done,” says Fleming.
It doesn’t hurt to find out what a broker offers, and then see what your own financial institution can do. Shopping around can only benefit you, and you can be sure you’re getting the best offer for your situation.
How to vet a mortgage broker
Fleming says it makes sense to check up on your mortgage broker before moving forward. Not every broker has high standards.
He says to start with the National Mortgage Licensing System to check on brokers. “Loan officers don’t need a special license. They just need to register with their state,” says Fleming. On the other hand, mortgage brokers take a national test and have to meet state requirements as well, he points out.
“With the NMLS, you can see the status of a broker’s license, their history, and see if any negative actions have been taken against them,” Fleming says. “Once you go there, you can check your state’s licensing authority for more information.”
Fleming also recommends using a broker that belongs to the National Association of Mortgage Brokers. “There are higher ethical standards, and the focus is really on advocating for consumers in these professional organizations,” he says.
In the end, a mortgage broker can be a great help as you look for a home. However, mortgage brokers aren’t strictly necessary. It’s possible to use the internet to find mortgage rate quotes and perform a similar function.
Before you make a decision, do a little shopping around. See what the mortgage broker offers, and compare that to what you find online and from your own financial institution.