Buying a home or refinancing a mortgage on property can be a challenging task, given the financial requirements necessary to get the job done efficiently. With the rapid growth in the number of mortgage lenders offering home loans to consumers, the process is even more complicated than in years past. Fortunately, prospective and current homeowners have help through licensed mortgage brokers. These professionals offer several advantages when it comes to securing a mortgage, but there are just as many drawbacks to consider when working with a mortgage broker.
The Advantages
Expertise in the Market
One of the most notable advantages of working with a mortgage broker is the valuable expertise they offer in the home buying or refinancing process. Mortgage brokers have ample industry experience to lean on when offering mortgage solutions to their customers. They also have a working knowledge of the current housing and lending markets, and the types of mortgage loans that may be most appropriate for specific borrowers and their unique circumstances. This expertise can be incredibly beneficial in obtaining the right loan for the long haul.
Access to Lower Rates
Mortgage brokers also have access to wholesale rates on home loans. These rates can be lower than retail interest rates, helping borrowers save money over the life of a home loan. Even for borrowers who have challenging credit issues or minimal financial means, having access to lower rates can make all the difference in getting a mortgage that is affordable and one that is not.
A Single Application
Home buyers who work with a mortgage broker only have to submit a single application for a new loan. There is no need to complete several different applications or provide multiple copies of financial documents like pay stubs or bank statements to various lenders. The mortgage broker does the majority of the legwork to help get the best possible loan options for clients.
Availability of Multiple Loan Options
Many mortgage brokers work with several different lenders, some which may not be available except through a licensed brokerage. This means that borrowers can get information about 30 year mortgages and have more options for the home loan that will work best for them, not only in terms of the interest rate but also the term of the loan.
Potential Reduction of Fees
Working with a mortgage broker may also result in a reduction of fees typically charged by the lender. Borrowers may pay less for funding or origination fees that are assessed by the loan provider. However, this is not always the case. It is essential to ask for the fee breakdown when working with a broker.
The Drawbacks
Maximizing Compensation
Mortgage brokers work on commission, paid directly from the lenders they work with to fund loans. Some lenders pay higher commissions than others, and this may lead to a conflict for the broker. Borrowers may not know if they are getting the best possible deal when commissions from lenders vary. To really maximize your commission discount you may even consider getting a loan officer license yourself.
Missing Out on the Best Deal
Although brokers have access to many different mortgage lenders, not all loan providers work with brokers. Instead, they only offer home loans directly. This means that a borrower may not be getting the best loan rate or term because the broker is limited in the lenders he or she works with for funding.
The Broker Fee
Lender fees may be lower when working with a mortgage broker, but there may be a broker fee assessed to borrowers. Brokers’ fees range from one professional to the next, and depending on how high the charge is, home buyers may ultimately pay more when working with a broker.
Uncertainty on Final Numbers
Many mortgage brokers do not provide more than a good faith estimate when running potential mortgage numbers for a customer. A good faith estimate may not include all the final details of the mortgage payment, the interest rate, or the fees associated with the new home loan. This can result in unexpected loan terms at closing, which could cost the homeowner more than if they worked with a direct lender.
Extra Legwork
Finally, not all mortgage brokers are created equal. State and local authorities may require a mortgage broker to hold a license to do business with customers in the area, but the application requirements vary depending on location. Brokers may only need to provide their business address and work history to obtain a license, or they may have to secure a surety bond or insurance as part of the process. Checking on these details to ensure a mortgage broker is legitimate can mean extra legwork for the borrower, along with asking for references and customer testimonials before agreeing to do business.
