Shopping for a mortgage can be a nerve-wracking process, which is why some people choose to hire a broker rather than go it alone. If you go directly to lenders, you have to take the time to learn about all the different types of loans available and then find lenders that offer the loan you want. You also have to spend a lot of time shopping around to find lenders that offer the lowest interest rates and fees.
Although going directly to lenders may require more effort on your part, you are often rewarded with lower closing costs and a better deal overall. If you hire a mortgage broker, on the other hand, lenders might increase your interest rate because they have to pay your mortgage broker a commission. That being said, working with a mortgage broker also has its advantages.
Reasons to Use a Mortgage Broker
Mortgage brokers are industry experts who can help you navigate the choppy waters of mortgage lending. Mortgage brokers act as a liaison between you and lending institutions, negotiating the best rates and terms on your behalf. They typically work with dozens of different lenders in order to secure the financing options you seek. Mortgage brokers have relationships with a number of different financial institutions and are able to provide an array of rates and options. The rates you get from a broker may be better than what you’ll find on your own, but it depends. Brokers are motivated to get your loans closed since they only get paid if that happens.
Working with an experienced, competent mortgage broker can save you the time and headache of calling up dozens of lenders and comparing their mortgage terms and rates. A broker also does all of the legwork for you in terms of completing paperwork and negotiating with lenders. There are several different fees associated with getting a mortgage, such as application fees, appraisal fees, and origination fees. A mortgage broker may be able to get lenders to waive some or all of these fees, saving you hundreds of thousands of dollars in the process.
Reasons NOT to Use a Mortgage Broker
Prior to the financial crisis in 2008, people who had credit problems or other financial woes that prevented them from qualifying for a mortgage typically worked with brokers. Before the economic crash, you could get a home loan no matter how bad your credit was, thanks in part to brokers. Today, however, you probably wouldn’t be able to qualify for a loan if your finances aren’t in order because lending requirements have gotten a lot stricter. Furthermore, a growing number of lenders no longer work with brokers because they have found that broker-originated mortgages are more likely to go into default than direct loans.
Mortgage brokers work for themselves and therefore tend to have their own interests in mind. If you want to be sure that you’re getting the best rate and terms, your only option is to hunt extensively for a mortgage on your own. You can make shopping for a home loan simpler by picking a specific type of loan, such as a 20-year fixed rate mortgage with zero points, and only looking for that type of loan. If you’re someone who prefers to delegate tasks to others rather than take the DIY route, find brokers with solid references and ask them to guarantee their loan estimates.