Mortgage brokers give homebuyers access to mortgage loans and rates that might otherwise be unavailable. Furthermore, they assist with the loan application process, offering insights about credit worthiness, income levels, down payment requirements and other elements affecting a borrower’s eligibility for a loan.
Mortgage brokers are independent, licensed professionals who review borrowers’ financial portfolio to match them to the right lender and loan. An experienced broker will have access to multiple lenders, giving borrowers more chances for competitive interest rates.
Additionally, many brokers have access to sophisticated loan-pricing systems that enable them to price a mortgage across multiple lenders simultaneously, which can simplify the mortgage process.
Before selecting a mortgage broker, it is essential to consider their compensation structure. Usually, borrowers pay brokers either via commission or borrower fees; this can influence how much money they end up spending on their loan and how motivated they may be to find more budget-friendly options.
Typically, mortgage brokers charge an upfront fee of 1% to 2% of the loan amount that may be paid at closing or rolled into the loan balance. No matter which method is chosen, all fees must be disclosed upfront and in writing so borrowers can assess whether they make financial sense given what services they receive.
Mortgage broker fees are usually covered by a lender, but the Dodd-Frank Act prohibits mortgage brokers from charging hidden costs or basing their compensation on the borrower’s interest rate. Furthermore, brokers cannot pressure borrowers into taking out a loan that pays them more than what would have been paid had the lender not intervened.
Another essential factor to consider is a broker’s experience in the mortgage industry. If they’re new to it, they might not possess enough expertise to match a borrower with an appropriate loan.
When searching for a broker, it’s best to look one with an established history of helping borrowers similar to yourself. If your credit score and income are both low, a broker who has worked with similar buyers in the past might be more likely to provide you with favorable loan conditions.
Mortgage brokers should also offer helpful tips and tricks for getting approved, such as demonstrating consistent monthly income or creating a strong debt-to-income ratio.
Some brokers provide complimentary consultations to determine if they’re the right fit for you. These meetings are an excellent way to get things started and ensure all your needs are taken into consideration.
The Dodd-Frank Act also prohibits brokers from receiving kickbacks or inducing borrowers’ decisions through partnerships with affiliates (like title companies). This could lead to them steering you into a loan that is more expensive than it would have been had they chosen the lender themselves.