Mortgage Brokers: Should You Use One?
Are you considering buying real estate and wondering whether to engage a mortgage broker? Analyze the pros and cons of their role in your real estate journey and see if it makes sense for you.
The Role of Mortgage Brokers
A mortgage broker acts as an intermediary between a potential buyer and lenders, helping the buyer find the best loan terms and rates to meet their financial needs. However, the practices of brokers came under scrutiny following the real estate market crash in 2008, raising questions about their commitment to customers’ best interests.
Working with a competent mortgage broker can help you find the right mortgage. However, there are both advantages and disadvantages to using a mortgage broker, and these should be carefully considered before making a commitment.
How Do They Work?
A mortgage broker performs as a go-between for a financial institution that offers loans secured with real estate and individuals who want to buy real estate and need a loan to do so. The broker works with both the borrower and lender to get the borrower approved for the loan, collecting and verifying all necessary paperwork.
While a borrower can choose to work directly with a lender, some lenders only work through mortgage brokers. Therefore, if your preferred lender falls into this category, you’ll need to use a mortgage broker.
Benefits of Using a Mortgage Broker
Mortgage brokers have regular contact with a wide variety of lenders, some of whom you may not even know about. They can steer you away from lenders with onerous payment terms buried in their mortgage contracts. Brokers may also be able to get rates from lenders that might be lower than what you can get on your own due to the volume of business they generate for a lender.
In some cases, mortgage brokers may be able to get lenders to waive some or all of these fees, which can save you hundreds to thousands of dollars.
Drawbacks of Using a Mortgage Broker
Many home buyers assume that a broker can deliver a better deal than they could get on their own, but this is not always the case. Some lenders may offer home buyers the very same terms and rates that they offer mortgage brokers (sometimes, even better). Therefore, it’s always beneficial to shop around on your own to see if your broker is really offering you a great deal.
Mortgage brokers are paid either by the lender or by you. If the fee is covered by the lender, you need to be concerned about whether you’ll be steered to a more expensive loan because the commission to the broker is more lucrative. If you pay the fee, figure it into the mortgage costs before deciding how good a deal you are getting.
Do You Need a Mortgage Broker?
Working with a mortgage broker can save a borrower time and effort during the application process, and potentially a lot of money over the life of the loan. In addition, some lenders work exclusively with mortgage brokers, meaning that borrowers get access to loans that would otherwise not be available to them.
However, it’s critical to examine all the fees, including those you might have to pay the broker, those you may owe the lender, and any fees the broker can help you avoid. Looking at all the pros and cons of using a mortgage broker can help you make your decision about whether you need one.
