There are some bad feelings about mortgage brokers left over from the housing bubble and what seems to be at the root of the issue is a dearth of honest advice. Indeed, working with a broker isn’t always easy and sometimes their interests don’t correspond with your own. On the other hand, working with brokers can be beneficial to potential homeowners and understanding the role they play in the real estate market can help you decide if you need one.
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What Does a Mortgage Broker Do?
Brokers are mortgage specialists. They act as intermediaries between banks and other mortgage lenders and individuals looking to borrow money to purchase property.
Ideally, a broker helps you evaluate your financial standing and find loans from lending agencies that suit your situation. They provide a means through which to acquire a mortgage. But know that you can also obtain home loans on your own through credit unions, your bank, larger international banks and lending agencies such as investment firms.
Shop Around for the Best Mortgage Rates
A smart shopper always looks around and gets a feel for the field before committing to a product. Similarly, the only way to be sure you’re getting the best deal on your mortgage is to explore different loan options. It’s a good idea to avoid limiting yourself to just one broker and this is where the footwork comes in.
Because interest rates on mortgages can change daily, it’s best to give yourself time to make a lot of calls. To be able to make a real comparison, it makes sense to stick to a specific loan – like a 30-year fixed-rate mortgage without points – and find out how brokers’ rates stack up against those offered by banks and credit unions.
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Mortgage Broker Fees
Besides mortgage rates, you’ll also need to find out whether the brokers you’re comparing charge fees.
Fees are the primary source of compensation for brokers. Some get paid by charging borrowers fees, some mark up wholesale interests rates to retail value and others are paid by lenders.
It’s wise to make sure your broker isn’t being compensated more for selling you on a particular mortgage. To make sure this isn’t the case, you can ask your broker if his yield-spread premium (industry term for the money brokers earn from lenders) could be lower if you went with a different type of loan.
Mortgage Brokers vs. Banks
There are pros and cons to working with mortgage brokers.
A broker could be a big help if you find yourself in an extremely competitive market and you’ve found the house of your dreams. In order to secure the house, you’ll need a mortgage and like other forms of dreaded paperwork, this can take time. Mortgage brokers can close transactions quickly if you’re pressed for time and they’re more likely than banks to speed up the underwriting and funding processes.
But if you want to avoid brokers’ mortgage fees, going straight to a bank to find a home loan might be a better option.
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