Homebuyers who need to evaluate their financial situation and search for the right loan might turn to a mortgage broker for help. Mortgage brokers typically complete preapproval applications, itemize necessary documents and offer advice on the lending environment. The Federal Trade Commission recommends comparing loans from several lenders, and a mortgage broker can facilitate this process. When it's time to get serious about a lender, borrowers with good credit can use a mortgage broker to help them negotiate the best mortgage terms.
Quiz: Should You Hire a Mortgage Broker?
Do you enjoy comparison shopping?
Do you enjoy negotiating the best deal?
Are you a savvy and experienced home buyer?
Do you have circumstances that might make finding a home loan a challenge?
Do you have difficulty in understanding or completing forms (such as income taxes)?
Do you have an existing relationship (such as a friend) with a broker?
Are home loan rates rising at the moment?
When you're buying something, is it important for you to reach someone on the phone immediately?
Quiz: Should You Hire a Mortgage Broker?
If you answered "no" to questions 1-3, working with a broker might provide peace of mind. Also, a "yes" answer to questions 4-6 might indicate a broker is right for you. On question 7, if rates are rising, lenders are typically facing less competition for loans; if so, a broker could help track down the best available mortgage loans. A "yes" to question 8 also suggests you may prefer working with a mortgage broker, who could quickly answer your questions throughout the homebuying process.
6 Essential Questions to Ask a Mortgage Broker
Finding a broker who'll work with you, as opposed to pushing a specific lender or loan package, can translate into a successful and pleasant homebuying experience. Before going to the mortgage broker's office, review this list of important questions you'll want to ask. This can help you in finding the best mortgage broker to help you buy your dream home.
|Questions||Answers You Want to Hear||Red Flags|
|Do you specialize in certain types of mortgages?||A broker who specializes in your mortgage needs may be the best bet.||If the broker's specialization doesn't match your needs, you may want to look elsewhere.|
|How long have you been a broker?||Complicated financing packages benefit from a review by a seasoned broker with years of experience.||A broker with less than three years of experience may not have a deep enough knowledge to set up special financing outside the 30-year fixed-rate mortgage.|
|Is my set of circumstances the type you've handled before?||Yes.||A broker unfamiliar with your specific mortgage hurdles may lack the experience to work effectively on your behalf. You could end up wasting money and not getting the best loans for your needs.|
|Based on what you've learned about my situation so far, what type of loan do you think fits me best? Why?||The answer should satisfy the requirements you've laid out for a mortgage along with good reasons for pursuing this route.||If the broker's explanation of loan options isn't clear or contradicts information you've already learned through your own research, move on.|
|How long do you think it will take to close my loan?||In an ideal world, it would take two to three business days to get a "conditional commitment" for a loan. Four to 10 weeks until final closing (this covers factors such as resolving property liens or missing documentation, how quickly the seller can vacate the property, etc.).||Barring unresolved loan issues, mortgage brokers and lenders who can't provide a conditional commitment for a loan within two to three days of receiving your application may be wasting your time.|
|How will you be paid for your services?||The broker's fee is paid either by the homebuyer or the lender, who will fold the fee into the loan package, so the borrower ends up paying regardless. Mortgage brokers should be willing to discuss openly if their fee is tied to the interest rate of the loan, and whether they earn a fee from the borrower and the lender.||Mortgage brokers who charge more than 2 percent of the loan value could be overcharging.|
How Mortgage Brokers Are Paid
Mortgage brokers charge fees that are paid when the loan is originated, and typically range between 1 percent and 2 percent of the total loan value. Mortgage brokers are typically paid either directly by the homebuyer or through the lender underwriting the mortgage loan; under 2010 guidelines, they can no longer be paid by both. For instance, a $300,000 loan would result in a broker's fee of $3,000 to $6,000.
According to the Department of Housing and Urban Development (HUD), many homebuyers don't have the cash on hand to pay the upfront costs of buying a house. These costs include appraisal fees, title insurance, and the mortgage broker's fee. Some brokers will arrange to wrap these costs into the mortgage. Generally, if you can afford the upfront costs of a house settlement, including broker's fees, you will pay less over the life of the mortgage, according to HUD.
A Mortgage Broker's View
Scott Desmond is a mortgage loan originator with Crown Mortgage in Charlottesville, Virginia. He has worked in home lending since 1993.
How has the business changed for consumers following the housing meltdown?
"There's definitely a greater need for a mortgage broker since the meltdown. The problem then was not all brokers had the best reputation. In 2008, there was a shakeout, which was good for the consumer. A lot of those brokers with bad reputations went back to selling used cars after the meltdown. Since 2008, the requirements to stay in the broker business have gotten much stricter, with annual training and license renewal or you cannot do this work. Another change is now everyone is required to use the same forms, whether you're a broker or a banker."
What is the biggest mistake you see consumers make when applying for a mortgage?
"I still think they need to talk to three or four people, bankers, brokers, whomever. They assume the local bank has the best deal, but that's not necessarily the case. Another mistake is people won't go to an attorney until after they're in contract, when they're already stuck. Also, get prequalified and find out what you do qualify for. Find out what monthly payment you'd like and work backwards from that. And try to hold off from giving out your Social Security number. If you've got good credit scores, it probably won't matter. But if your scores are on the fence and you give out that number before you're ready to do business, they're going to pull that credit report. You pull that report enough times and it could pull down your score, and it'll cost you more to get a loan. So, when you're shopping, don't give out personal information other than your name and contact information."
What can homebuyers do to speed up the lending process?
"Don't buy anything major prior to buying a house for at least six months. No major purchases, especially a car. Save your bank statements and paystubs. Don't deposit cash in your checking account unless you have documentation for what it's for. Because the underwriters are going to scrutinize every single deposit and ask you the source of those funds."
Why should a buyer work with a mortgage broker like you as opposed to a bank?
"I typically will have many more options. We can work with Fannie Mae and Freddie Mac in addition to banks and other lenders. The very first thing I'll do when you come to me is search around and hand over a list that shows every single lender who offers what you're looking for, with the lowest price at the top. Banks offer their rates to us at wholesale cost."
Do brokers have a conflict of interest when it comes to recommending a loan? Do brokers always steer people to the best loans? Or is this potential conflict of interest overblown by mortgage broker competitors?
"There are less of them out there with a conflict than there used to be. I do believe the new regulations have made it much more difficult for those people to succeed in this industry. They can no longer go after a certain market segment. Again, people should always shop around with different brokers and banks. You are not safe from scammers no matter if you deal with a mortgage broker, a bank or a credit union."
What questions should consumers ask a mortgage broker before committing to a relationship with that broker?
"The number one question is to ask for the estimate in writing without them requesting your SSN or asking you to send in a check. They should provide you that information with no obligation. If they won't do that, cross them off your list. Make it clear you're still shopping and get everything in writing so you can compare offers. The requirements on us are to be as accurate as we can on that loan estimate, and it should be accurate within a couple of hundred dollars. If you gather several estimates and they are close, go with the loan officer who made you the most comfortable."
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This MoneyGeek guide to first-time homebuying takes a comprehensive look at the documents you'll need to process a loan, choose the right lender and loan, and much more.
Explains common mortgage terms to help you prepare when meeting a lender or mortgage broker.
A Consumer Financial Protection Bureau initiative that helps consumers understand their loan options, shop for the best mortgage and avoid costly surprises on closing day.
This MoneyGeek page provides a complete rundown on this most basic type of mortgage loan.
The Federal Trade Commission's guide on comparison shopping for a home loan.