Getting a mortgage is the most important part of the homebuying process for most would-be homeowners. Without the right financing, you won't be able to buy the home of your dreams, and finding the best mortgage can save you thousands compared to choosing a second-best option. Some homebuyers shop for mortgages themselves, going to multiple banks and lending institutions and doing comparison shopping on their own. An alternative is to use a mortgage broker, who can take care of much of the legwork in finding attractive rates and good loan options that will fit your needs and your budget. Knowing what a mortgage broker does will help you decide whether you need one to help you get the best deal on financing for your next home.
What a mortgage broker does
A mortgage broker is a professional who is familiar with the market for home mortgage financing. Rather than being connected to a single bank or other lending institution, a mortgage broker can select from a wide variety of funding sources, giving clients easier access to whichever type of mortgage most closely meets their needs.
Mortgage brokers are often aware of options that you might not even know about. There are many special mortgage loan programs available to qualifying homebuyers, including those offered by the Federal Housing Administration, the Veterans Affairs Department, the Department of Agriculture, and the Department of Housing and Urban Development. Teasing out the details on all of those programs can take a lot of work for an individual homeowner, but most mortgage brokers will ask you the questions up front to find out if you qualify for any of these programs.
The other thing that good mortgage brokers can do is to negotiate on your behalf. In some cases, a mortgage broker can get you a better interest rate, while other situations can involve getting a waiver on certain mortgage fees and other related costs.
Pros and cons of mortgage brokers
In deciding whether to pick a mortgage broker over shopping directly with a bank, there are advantages and disadvantages to consider. On the plus side, having a mortgage broker on your side can produce big savings compared to doing the work yourself, especially if you end up being eligible for a special loan or your broker can haggle out a better deal than you could on your own. Having more options for financing also gives brokers an edge over bank personnel, who sometimes have a more limited array of financing available to them.
Working with a mortgage broker does have some shortcomings. Some lenders won't work with brokers, instead trying to push would-be borrowers to work directly with the lending institution. Even though you hire a mortgage broker to work in your best interest, there's usually an inherent conflict of interest involved, because most mortgage brokers get compensated by the lender rather than charging you directly as a client. The fact that your broker won't get paid unless you close a deal can result in your broker putting pressure on you to accept a financing deal -- even if it isn't necessarily what you're comfortable with or the best alternative available in the mortgage financing universe.
Making the decision
Whether to use a mortgage broker depends a lot on your comfort with the homebuying process and the availability of professionals whom you can trust. If you already have good relationships with loan officers at local banks in your area, then you might prefer to take advantage of those connections rather than going with a third-party financing source. Those who don't have established banking relationships that will pay off with more attractive financing deals have greater motivation to work with a mortgage broker who already has the connections you need.
Getting the best mortgage you can is important and can save you thousands over the lifetime of your mortgage loan. It's worth making the effort to look at all your mortgage options, and if you don't have the time to do it yourself, then a mortgage broker can make it a lot easier for you to navigate the home loan process.