When it comes time to buy a house, finding the right mortgage is almost as important as finding your new home. You want to aim for the best rate with the lowest fees. We suggest you opt for a mortgage broker. There are pros and cons to working with a mortgage broker. If you are a first time buyer then we highly recommend working with an experienced, reputable mortgage broker.
Mortgage brokers have the inside track, knowledge and experience to navigate the tricky waters of finding the best mortgage rate. In our previous blog, Mortgage: What are the Different Loan Options? We discussed the paperwork needed to get the process started. This paperwork arms the mortgage broker to go out and “shop around,” for the best deal. A broker will know the options out there and negotiate on your behalf.
How do lenders get paid?
One of the ways lenders make money is through their origination fee. The amount they charge for processing your mortgage. This typically includes underwriting, documentation preparation, processing fees and tax service fees. These fees can add up. Pay close attention to the closing disclosure and question everything because it is negotiable. I would suggest negotiating with the seller to cover some of the closing cost.
How does a Mortgage Broker get paid?
Before signing up to work with a mortgage broker, ask how they are paid. A lot of times the lender can pay the broker fee but sometimes the burden falls to the borrower. The average cost for a mortgage broker is 1-2% of the total loan cost. There is a federal law called “the Truth in Lending Act,” that requires banks and other lenders to disclose their fees and interest cost to the borrower at or before closing. The Federal Trade Commission in fact, this past February returned $10 million to consumers who were charged hidden fees by the online lender Lending Club Corporation. The FTC in 2020 alone returned $483 million in refunds to consumers across the country. The FTC will work hard at going after those who mask their fees but you as the consumer need to do your part and read every line item and ask about all fees. Brokers cannot double dip, they are either paid by you, the borrower or the lender, not both.
Here is the thing we have discussed throughout many of our blogs and videos: the importance of great people. You want to have professionals in your corner. You want a pro, someone who spends their life devoted to making deals. If you try to go at it on your own you will most likely make a costly mistake.
What questions should you ask, when hiring either a Mortgage Broker or a Lender?
- As we just mentioned, above all else, understand the fees.
- Check their credentials, don’t assume they are licensed in your state.
- Ask for referral testimonials that speak on the brokers behalf.
- What type of loan will be best for your situation. We give a brief overview of the different kind of loans out there in our previous blog
- Can you show me a breakdown of the different down payment amounts? Are mortgage points a good option for me?
- What is your availability?
- Do you offer a rate match (if you are shopping around and have a couple of different brokers in mind use their fees against one another)
| What are mortgage points? |
| Mortgage points or discount points are fees a homebuyer pays directly to the lender in exchange for a reduced interest rate. This is something long term loan applicants of a fixed mortgage rate should look into. “Buying down the rate,” is when you pay some interest up front in exchange for a lower interest rate for the lifetime of the loan. It is an effective way to prepay interest rates. |
Recap. The Pros of working with a mortgage broker:
- Mortgage brokers can help you save money in the short and long run. In the short run, they will help you save money on the application fee, origination fee and appraisal fee.
- Mortgage brokers work with banks and lenders scouring various sources, they have the connections you need.
- Mortgage brokers work to find you the best deal, saving you time and money.
- You pay to have someone on your side, working for your best interest to help you avoid big mistakes.
- If your credit isn’t great, regardless of your circumstances they will find something that works for you.
In the end your mortgage broker should be someone you feel comfortable with. You find the broker honest and trustworthy. As we always say, make sure you work with great people.
