Searching for the best rates and best mortgage terms can be hard on your own. That’s why some homebuyers opt to choose a mortgage broker, the middleman of the home loan market. Instead of going to each lender for a rate quote yourself, a mortgage broker does the legwork for you. Brokers generally receive compensation from the lender you end up working with or from fees charged to you. The amount is usually a percentage of the loan total. If you decide to go with a particular mortgage broker, always be sure to calculate your monthly mortgage payment to have a full understanding of what your costs will be.
Tips for When You Choose a Mortgage Broker
Before you choose a mortgage broker, make sure he or she satisfies a number of criteria. And you’ll want to consider if you need a mortgage broker at all. In general, most homebuyers go direct to lenders. Using a mortgage broker has fallen out of favor in the last 10 years, mainly due to the added cost of a middleman as well as the changes the financial crisis sparked.
But if you want to choose a mortgage broker to sort through lender options and do all the work of comparison for you, it can be worth the cost.
To help you with your decision, we compiled a list of questions you can use when you choose a mortgage broker.
1. What is your rate?
Mortgage brokers can be compensated in a number of ways. As independent contractors, each broker you speak to may have a different set of circumstances. You’ll want to find out how yours is paid in order to see if he or she has a bias toward a certain lender.
For example, if a lender pays your broker for each mortgage he or she brokers, watch out. You may be steered to a certain lender even if it may not be the ideal fit for your circumstances. Yes, it saves you from paying the broker, but the trade-off may be higher mortgage payments than if you went with an alternative.
Alternatively, many brokers are paid by you, the homebuyer. The payment, known as the origination fee, is generally around 1% of the loan amount. For example, if your loan was for $275,000, the fee would be $2,750. Brokers work on commission, not salary, so the higher the loan amount, the more they stand to earn. That means unscrupulous brokers may steer you toward a higher mortgage amount in order to boost their earnings.
2. What are my chances at qualifying for a mortgage?
Before you start the home buying journey, you want to make sure your financial health is set. If your credit score is low, or you have employment or income issues, high debt payments, a recent bankruptcy or foreclosure, you’ll want to share that with your broker. If the broker makes it sound like you’ll have no problems getting a decent mortgage rate, you may want to think twice. You want to work with someone who’s honest. That means if your finances aren’t in order, your broker should set realistic expectations of whether you’d qualify for good rates or even at all.
3. What lenders do you find yourself working with?
When you choose a mortgage broker, be aware he or she may work with the same set of lenders. Others cast a wider scope. Some lenders don’t work with brokers at all, opting to have in-house loan officers. If you want to be thorough, ask your broker this question to see how big the pool is. Working with a broker makes sense if you’re trying to rate shop across a wide array of lenders. If your broker only works with a handful of lenders, it’s cheaper to do the rate shopping yourself if you have the time.
4. Can I speak to a recent former client?
While you actually might not have any interest in hearing a testimonial, it’s worth asking this question to see what the broker says. If there’s hesitation or any sense that he or she is uncomfortable, then you know you probably shouldn’t do business with the person. But if the broker readily supplies a name, number or email, you know he or she has satisfied clients.
Some questions you could ask a former client could include how well the broker communicated throughout the process, if the loan he or she brokered was worth it, what the fees were or anything you’re curious about.
5. Why should I work with you instead of directly with a lender?
You won’t have to pose this last question expressly unless the broker doesn’t make it crystal clear why you’d benefit from working with him or her. After speaking with your potential broker, you should know whether continuing on with him or her makes sense. When you choose a mortgage broker, you should also have no doubt to what value he or she would provide. And if you still feel uncertain, go ahead and ask this question. If you don’t receive an answer that makes you feel comfortable, move on. It’s not worth spending money and time working with someone who may not help you in the way you need.
The Bottom Line
Make sure you need one before you go out and choose a mortgage broker. If you want the best rates with the least amount of work, sure, choose a mortgage broker who can help you with that task. But, if you have time to do some quote shopping on your own, give it a try. With so many lenders offering online prequalification and rate quotes, you may find that there’s no need for a middleman. That decision alone will save you on a broker fee. It also opens your mortgage options to every lender licensed in your state, not just the institutions your broker works with.
Tips for Choosing a Mortgage Lender
- Before you even speak to a mortgage professional, it can be helpful to find out how much house you can afford yourself. That way, you can compare numbers with what your mortgage lender might qualify you for.
- You don’t have to use a mortgage broker. If you want to find a lender on your own, SmartAsset has a list of the best mortgage lenders. We also have the best mortgage lenders for first-time homebuyers to help you find the perfect lender.
- Homebuyers after the lowest mortgage rates should always shop around before selecting a lender. Even if you use a mortgage broker, it’s smart to know what the going rates are for the mortgage term you want.
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