When you start the process of buying a home and looking for a mortgage, inevitably, one of your friends or your real estate agent will offer to put you in touch with their mortgage broker. But what is a mortgage broker and do you really need one?
A mortgage broker is basically a middleman between borrowers and banks or other lenders. A mortgage broker does not lend you money; rather, he or she helps you get the loan you need.
A good mortgage broker will help you find the best loan for you. That includes negotiating the lowest interest rate and fees, the best repayment terms for your circumstances, and getting you pre-approved before you make an offer. The lack of affiliation with a specific institution allows a mortgage broker to shop around for the best lender for your needs. However, some major institutions refuse to work with mortgage brokers; conversely, some institutions will only work with brokers.
When you start working with a mortgage broker, you can discuss your requirements or wish list for a mortgage. For example, you can specify a target interest rate. Or you can ask for help in figuring out how big a mortgage you can qualify for. Once you’re ready, you’ll provide your financial information to the broker, who will submit your loan application to one or more lenders on your behalf.
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Mortgage brokers are generally paid a fee by the lender, which can create a possible conflict of interest for brokers. They act on behalf of borrowers, but are getting paid by the lenders – so there is a possibility that they will procure terms that favor lenders more than borrowers.
For the most part, you can do everything yourself that a mortgage broker would do for you. And because some major institutions won’t work with brokers, you will need to work directly with representatives of those institutions if you want to get a quote or approval from them. Therefore, you might want to start by obtaining quotes from lenders yourself, and only hiring a mortgage broker if you aren’t satisfied with those quotes.
Other circumstances when you might want to consider hiring a broker include buying a home long-distance and using a broker who is local to your new area, if you have circumstances that require special consideration such as poor credit, or if are extremely busy and don’t have time to contact lenders directly,
If you opt to hire a mortgage broker, be sure to check references and ensure that you are working with someone reputable and professional.