It's important to keep the possibility in mind that you could be on the hook for other hidden homeownership expenses and plan well in advance. Here's how.
Buying a home is one of the biggest challenges we will encounter as we go through our own paths in life. And the going can get even tougher during a pandemic which makes securing a home all the more a task that must not be delayed.
Unfortunately, many of us will find that the lack of time to research home loan offers and deals properly leads to higher expenses than we can afford, keeping in mind that mortgages are long-term responsibilities. One of the essential steps to take as you apply for a mortgage is to ensure that you are getting the best type available according to your financial capability.
According to a Consumer Financial Protection Bureau (CFPB) survey, nearly 1 out of every 2 borrowers don’t shop around for home loans, signing with the first mortgage lender that they speak to. In the same study, the CFPB noted, “research showed that a borrower taking out a 30-year fixed-rate conventional loan could get rates that vary by more than half a percent”. Even just half a percent of savings translates to about $60 every month that you can be putting forward to bills or groceries. Multiply this with the number of months you’ll be paying your loan, and you’ll realize the serious amount of money this entails.
A mortgage is a necessary debt for many people; therefore, enough effort must be put in to find the best loan offer, the best lender, and the best interest rate available.
In this article, we will talk about an option you can take to lower your mortgage expenses. We will discuss the benefits of using a mortgage broker and put forward our recommendations for choosing the best mortgage brokers near you. We hope that today we can impart relevant information that will be able to aid you in your journey to securing your dream home.
Are mortgage brokers better than banks?
Banks seem like the logical place to go when you are chasing after a mortgage deal. After all, they would be most knowledgeable about financial transactions with all their experience through their borrowers. But banks also have their own personalities. The products and services they offer are reflective of the needs of their average customer. Remember, as one mortgage might be ideal for your neighbor, it might not necessarily be the best home loan for you. And with this in mind, it might help you a long way if you hear as many offers as you can before you settle for your pick of the bunch.
Mortgage brokers serve as the middle salespeople when it comes to home loans. It is their job to learn your financial history and capacity so that they can tailor the best mortgage outfit for you. On your behalf, they will approach banks and different lenders to find out whether you might be eligible for their loan offers. Today, the mortgage industry is a very crowded and competitive one, which is why the less you are talking to lenders and brokers, the more you might be losing out in terms of savings and mortgage rates.
Benefits of Hiring a Mortgage Broker
1 – Someone to do the legwork
Many borrowers who choose a mortgage broker to find the best mortgage ultimately do so because of the ton of paperwork involved. Think about this. When you apply for a mortgage, you’ll have to present documentation about the property you will be buying (which will involve several meetings with the real estate agent or seller), request a credit report so you can find out your credit score, and consolidate proofs of your employment, income, and net worth to support your capacity to make payments. Several documents will have to be checked, signed, and submitted. And once you have all of the necessary papers, you’ll also have to go around and talk to various mortgage lenders to make sure that there is no stone left unturned.
These are tasks that will be worth your while to delegate to mortgage brokers, so you can focus your time on the other important tasks involved when you have decided to make a change of address.
2 – Access to better deals through a partnership with mortgage lenders
If we’re going to be real about it, no one really has the time needed to properly comb the market for a low down payment and interest rates.
Because they have particular expertise in this line of work, a mortgage broker might be able to advise you on your chances and loan options with just one look at your financial profile. The mortgage application process is tiring enough that you might not want to go through it repeatedly lender after lender. By using a mortgage broker, you may be able to skip the whole researching part and land with the best lender your money can afford.
Furthermore, mortgage brokers will already have existing partnerships with the best mortgage lenders. The deals they can score through this relationship might not be offered to you otherwise. You might be able to save on your application fees, loan origination fees, and even closing costs, all without having to speak directly with your mortgage lender personally.
How do I find a good mortgage broker?
You might be thinking, “If there’s no better way to get the best home loan, why are there people who don’t use mortgage brokers?”
As the CFPB found out in their study, many borrowers fail to compare the offers of different lenders, often choosing the first lender they encounter. At the end of the day, it really is just more convenient until you learn just how much you may be able to save through other lenders, which most people do not bother to find out anyway.
There is, however, a caveat to using a mortgage broker that you may already suspect. Just as a real estate agent has a stake in the sale of a house, a mortgage broker will also have a stake in closing a home loan. Mortgage brokers are paid via commission which is typically 1 to 3 percent of the loan amount. The borrower or the lender may pay this, and it usually appears in the closing costs. Needless to say, the bigger the loan amount, the higher the income of the mortgage broker.
The best way to find the mortgage broker who’s right for you will be to get testimonials from previous clients they have handled. Better if you can find an experienced client that you can also trust. Another way is by getting a benchmark offer of your own through an initial negotiation with lenders so that you can have a point of comparison. Many people already get this information when they get a preapproval or prequalification letter from a mortgage lender. It will really be up to how much savings you want, based on how much home equity you can afford or how you score in your credit report.
The Best Broker for First-Timers
First-time home buyers are usually identified due to a lower than average credit score. To ensure that opportunities will always be available, the federal government backs loans, especially for inexperienced homebuyers, through Federal Housing Administration loans (FHA loans). The minimum credit score required for this type of loan is only 500, for which you can be lent up to 90% of your home’s purchase price. If your credit score is 580 or higher, you can borrow up to 96.5% percent at just a 3.5% down payment.
Since FHA loans are among the ideal mortgage options for first-time home buyers, you may want to get advice from people who are already making payments for an FHA loan when you go around asking for reviews of mortgage brokers.
According to a 2004 study by Wholesale Access Mortgage Research & Consulting, about 53,000 mortgage companies act as brokers in the country. This translates to about 419,000 professionals you can consult with and entrust with your loan application. While the one top broker in the nation may be hard to pinpoint, there may be a few things you can ask to find the ideal broker who will do right by you.
- Has this broker worked for a client I personally know?
- Which mortgage lending companies have this broker worked with in the past?
- Will this broker be able to present me with options or hard sell the one loan offer?
- How transparent is this broker with fees and costs?
A good mortgage broker will be upfront with you regarding how they will make money through your business. Ensure that you clear the air by getting directly to the point so the fees will leave you with no surprises come closing time.
Moving into your dream house is one of the most exciting times in a person’s life! We wish you the best of luck and the smoothest of paths in your journey ahead. Safe travels!