What is a Mortgage Broker?
There is some confusion between mortgage brokers and mortgage lenders.
A mortgage broker doesn't lend you the money to buy a house or other type of property. That is the job of a mortgage lender, such as a bank, credit union or building society.
A mortgage broker is an advisor who can help you to select the most suitable home loan product for you, just as a stock broker doesn't sell you shares but helps you to place transactions to buy and sell shares.
A good mortgage broker will have a detailed discussion with you to understand your finances, plans and credit history.
They will then explain to you what mortgages are available on the market, what are the pros and cons of each mortgage, and which one they think is best for you - and that you will qualify for.
Having selected a suitable mortgage or loan, the mortgage broker will proceed to help you fill in the forms and provide the necessary documentation.
Mortgage brokers normally know reps at each mortgage company and have experience of the process and requirements, so they will continue to serve a useful function liaising with the loan officers, answering questions 'correctly' and generally oiling the wheels of the process.
Mortgage brokers often accept applications from borrowers first and then try to lock in rates and terms with lenders on a 'pre-approval' basis. They also provide required state and federal disclosures.
The brokers will thgen gather all necessary documents, including, but not limited to, credit reports, employment verifications, asset disclosures, and property appraisals.
An experienced mortgage broker will provide basic credit advise to help their borrowers with correcting credit issues and getting better loan rates. They also assist borrowers in understanding terms and conditions, cashflow projections and the application process.
Once the loan is approved and disbursed, the relationship normally will be directly between the borrower and the lender, with the broker's work having been completed. Make sure you ask all the questions you need to up front, before it is too late!
How Do Mortgage Brokers Make Money?
Brokers usually make money by earning commissions based on the interest that the lender will earn on the loan. That means there is no cost to the borrower for using a mortgage broker, unless fees are explicitly stated up front. However, the use of a mortgage broker may increase the interest or upfront fees calculated on the mortgage. They are only paid once the loan is disbursed.
How Can I Pick the Best Mortgage Broker?
Mortgage brokers in most countries are unregulated, so you have to step carefully when looking to select the best mortgage broker.
We would give you the following advice:
1. The best brokers work with tens or hundreds of different mortgage lenders or providers. Ask for details of how many banks or other lenders the broker works with
2. The longer the broker has been in business, the better they will understand the detailed pros and cons of different offers. Ask for the broker's track record and experience
3. You may have specific needs, such as bad credit financing or commercial property financing. Ask for the broker's specific experience in your area of need
4. Check with friends and neighbours in the area that you are seeking financing for, to see if they have recommendations. You can also ask your local bank manager or consumer society