When you’re looking for a mortgage, to either buy a home or refinance one, you can use a mortgage broker or deal directly with the bank.
Using a broker to get a home loan instead of going directly through a bank loan officer or other mortgage lender has its pros and cons. Depending on your needs and situation, you’ll have to decide which is right for you.
Going it alone
If you go it alone, you deal with the bank directly. If you’re a regular customer and have a great relationship with your local bank or community bank, for example, you might receive better terms and interest rates. A local mortgage lender may work with you, especially if you already have accounts with the financial institution.
If you don’t have a good working relationship with a particular mortgage bank, you should shop around for a home loan. Even if you do have a mortgage lender you’ve worked with, you should consider shopping around anyway—don’t assume your bank is automatically giving you the best deal.
Keep in mind that when you’re on your own, comparing mortgage rates and terms for home loans from different lenders can be time-consuming and complicated. Some borrowers may not know how to compare mortgage products correctly or be savvy enough to slice through all the lender’s financial jargon.
Each mortgage lender typically offers just a few mortgage options, so in order to find the best mortgage rates and other terms, borrowers have to talk to loan officers at each bank and lender.
Pros of using a mortgage broker
Brokers are mortgage experts. They know the market, follow trends, and know which banks and other institutions offer which mortgages products. They’ll also know which lenders are offering discounts or deals on home loans.
More importantly, mortgage brokers can save borrowers time getting a mortgage loan. A smart broker can identify the most appropriate lender for your specific circumstances and know which mortgages will be most appropriate. Mortgage brokers also handle the hassle of paperwork and interaction with lenders, which can help relieve stress from the loan process.
This saving of time, work, and stress is a big factor for many individuals who use a mortgage broker. Some brokers develop personal and professional relationships with lenders, which may accelerate the application process.
You can meet with a local mortgage broker face to face, in his brick-and-mortar office, and get your questions answered. That may be more reassuring than talking to a different person every time you contact an online lender.
However, these relationships between broker and mortgage company aren’t always a good thing.
Cons of using a mortgage broker
You may want to consider these things before you decide to use a broker instead of a local bank, direct online lender, or other loan program:
- Mortgage brokers aren’t free. Mortgage broker fees typically range from 1% to 2% of the mortgage. You also need to consider who pays the broker’s fee. While many mortgage brokers receive payment from the lender, some charge sizable fees to the borrower for arranging the loan, which you pay as a closing cost. This is especially true if your mortgage application involves credit issues or other financial hurdles, including those common to first-time buyers or home buyers looking for a low or high loan amount.
- A bad broker can favor lenders, not you. The deep relationships that some mortgage brokers develop with particular lenders can work against you. For example, a mortgage broker might steer you toward a loan officer or financial institution with whom he has a long history—and not the lender that offers the best terms. Likewise, if a broker is more concerned with netting the highest commission, he might steer you to one lender, instead of the lender best for you.
- They’re not all created equal. Mortgage brokers aren’t equally skilled and knowledgeable about loans. Some brokers may not know of all the loan deals and options, which means you won’t get the best loan deal out there. To find the best broker in your area, ask around. People who have recently gotten loans and your real estate agent may be able to steer you toward a mortgage broker who can get you better interest rates and other terms on your mortgage loan.
Updated from an earlier version by Moshe Pollock.
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