One of the most common questions people ask is regarding the benefits of working with a mortgage broker vs. a direct lender. With financial technology empowering consumers to make decisions themselves, what is the benefit of hiring a middle man? Does it cost more? What does a mortgage broker do exactly?
First, let’s be clear. Your father’s mortgage broker is probably out of business. The traditional mortgage man has been replaced by mobile apps and algorithms. These days, the #1 thing a mortgage broker can do is empower YOU to find the best mortgage possible. More times that not, this means finding the lowest annual percentage rate (APR) for your loan. Even a very small difference in APR can mean tens of thousands of dollars more in costs paid over the course of the loan.
How does a mortgage broker help you find the lowest APR?
The first way is by connecting you with offers from wholesale lenders. Wholesale lenders are companies that only fund and sell mortgages. They don’t have retail branches and they don’t get involved in other banking activities (i.e. checking accounts, credit cards, etc.). They only do mortgages. And, usually, they don’t hold on to them very long. Wholesale mortgage companies can fund a batch of loans and then sell them to a servicing company. Servicing companies are where people actually make their mortgage payments to.
Does working with wholesale lenders mean better rates?
The answer is sometimes. A good mortgage broker connects you with competing offers. Some come from traditional banks and big online mortgage companies. But, at the same time, offers can come from wholesale lenders that may be trying to outbid and outsell a specific kind of loan on that day. The point is, it’s important to open yourself up to all possible offers out there so you know for sure the loan you choose is the best deal.
The good news is this can all happen automatically when you apply online. A good mortgage broker will use an online pricing engine that takes into account your credit score, loan amount, down payment percentage and debt-to-income ratio to find the best deal. All info is needed since some lenders have more aggressive pricing for deals for certain criteria (i.e. a large down payment) while other companies can price out better deals for people with less than perfect credit. Every lender has their specialty product and can have better or worse pricing each day. So, it’s very important to be able to price out loans from all the lenders.
Having a good technology system where loans can be priced out online by the borrower themselves is what RateJab provides. We strive to provide perfect transparency in your loan by acting as the technology intermediary between you and the best possible offer from the lender with the best APR for your specific loan scenario.
Besides finding you the best mortgage rate, what else does a mortgage broker do? After pricing out the loan, the second half of your journey involves getting the loan closed. Back in the old days, this meant countless phone calls and emails with a mortgage processor while sending them more and more paperwork. But, today, a really good mortgage broker can integrate their system directly with the banks and payroll companies. This means that retrieving bank statements, paystubs and W-2s is automated so you don’t have to worry about documentation. This is all done for you.
The final thing that a mortgage broker should be doing is communicating with all parties of the transaction. Most problems that can occur during a real estate deal can be avoided with better communication tools. A good mortgage broker will be able to avoid issues by notifying your real estate agent, insurance agent, lawyers, sellers, appraiser, home inspector and anyone else involved through a good transaction management system. Everyone should get notified throughout the process and have access to a status report at all times.
Does it cost extra to use a mortgage broker?
It’s true that some still charge mortgage broker fees, but free tools like RateJab exist to connect you to wholesale lenders directly without any associated fees. In fact, it’s the lender and not the borrower that ultimately pays mortgage brokers when a loan closes. These are no extra fees to you. In fact, there are deals available where the lender will pay for all of your third party fees also like title insurance and transfer tax. Although the interest rate can be a little bit higher, it may make more sense to structure the loan this way depending upon how long you plan to live in the home. For more info on no closing cost options, check out Getting a Mortgage is Easier Than you Think.
Having a good mortgage broker is key to finding the best rate with the lowest fees and getting your loan closed on time. Instead of working with one of the big banks, make the choice to empower yourself to find the best option. Contact us today and gain access to the offers of hundreds of lenders competing for your business.