What is a mortgage?
A mortgage is the type of loan you need to purchase or refinance a house. Learn important mortgage terminology and what to expect from the process.
Diana Flowers
Qualifying for a mortgage loan often starts with a search for the right lender. Keeping track of interest rates, fees and closing costs as you do your research can be overwhelming; a mortgage broker can help you determine the type of loan that’s best for you and look for a lender that offers the lowest costs.
A mortgage broker is different from a loan officer, who works directly for a bank or lender. Instead, a broker works as an intermediary between you and the lenders and can introduce you to various loan products at different financial institutions.
The benefit to you is that a mortgage broker often has connections to different types of loans for various circumstances. They can often access loans for people with non-W-2 employment, lower credit scores and various other financial positions. Brokers also have connections with lenders with a range of interest rates.
You might assume that when buying a home you need to go directly to a bank or financial institution to get a mortgage, but this isn’t the case. Instead, you can go to a mortgage broker.
A mortgage broker helps connect buyers with lenders.
There are differences between going to a mortgage broker and going directly to a mortgage lender. A lender only has access to loan products offered through its financial institution. If you have a very straightforward loan, this might be fine. However, a mortgage broker can introduce you to many loan products that might better suit your needs.
Fees at a lender might be lower than with a broker; however, shopping around for a loan by using a broker lets you compare offerings and rates from different companies.
If you decide to go directly to a mortgage lender, you will likely work with a loan officer. A loan officer shows you loan products from one financial institution, while a mortgage broker has access to many mortgage loans with different terms and interest rates.
Other than the loan programs they have access to, their jobs are very similar. They will both ask you to provide your personal information, including income, and everything needed to complete a loan application. If you have a steady income and good credit, it might be best to work directly with a loan officer. If you want to shop around for different interest rates, a mortgage broker is a good option.
If you decide to work with a mortgage broker, there are certain documents you will need to provide in order to see what loan products you qualify for. It is important to understand not only what you will need to provide, but also what questions you should ask and how to negotiate with a broker.
Keep in mind this is not an all-inclusive list, and the broker might require additional documentation to process a loan application. These documents are used to see what type of loan program and which lender is most appropriate for your mortgage loan.
The difference between a borrower fee and a lender fee is who pays the broker. This amount is included in the Loan Estimate. A borrower fee is paid by the borrower and is usually rolled into the closing costs. If the mortgage broker is being paid by the lender, the lender sometimes tries to recoup that cost by increasing the mortgage rate for the borrower. Discussing these fees is essential when negotiating with a potential mortgage broker.
You can also ask about hidden fees; however, in 2010 the Dodd-Frank Act was enacted to prevent lenders and brokers from using fine print that might mislead borrowers.
There are also questions you will want to ask about the specific mortgage products the broker shows you from different lenders, including:
There are pros and cons to working with a mortgage broker. If you have good credit, you might want to work directly with a lender to save on the fees you will pay to a mortgage broker.
However, the time savings and greater number of loan options make working with a broker attractive to many homebuyers.
There are several benefits to working with a mortgage broker.
Working with a mortgage broker is not in the best interest of every homebuyer. Here are a few cons to be aware of when working with a broker:
Ultimately, whether or not it's beneficial to work with a mortgage broker or with a direct lender or loan officer depends on your situation. Things to consider are the type of loan you need, if you are a first-time homebuyer and your credit score. If you aren’t sure, you can always interview a few brokers to see if the benefits they offer are worth the extra cost.
Choosing to work with a mortgage broker is a personal decision, and there are several ways to help you decide if it's right for you. First, research different brokers. Ask for referrals from friends and family. You can also check review sites to see what feedback other clients offer.
When looking for a mortgage broker, you should also ask for credentials and professional standards. This includes things like continuing education, involvement with local mortgage professional associations and up-to-date licensing. It's always a good idea to talk directly with a potential broker to get an overall feeling for its ethical and professional standards.
When you’re searching for a home loan, there are two options: going directly to a lender or visiting a mortgage broker, who can research products from various companies to find the right loan for you. If your circumstances are relatively simple, you may save money by going directly to a lender. But if you’re concerned about qualifying based on your credit or income, or you’re unsure what type of loan is best for you, a mortgage broker can help you make the right decision.
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