With so many mortgage products on the market, it can be difficult to find the mortgage that’s just right for you. This is especially true if you have a complicated financial situation that may keep you from qualifying for more conventional loans.
What mortgage brokers have to offer
Ask your real estate agent what you should do to find a loan, and they’ll probably direct you to their favorite mortgage broker, a state-certified, independent loans expert tasked with wading through all the specialized loan options to find the right mortgage for you. You supply a broker with your financial information and goals, and they should match you with a mortgage loan program to help put you on the right path — starting with how best to finance your new home.
Mortgage brokers don’t work for free, of course. Broker fees are typically 1% to 2% of the loan amount and are rolled into the loan’s cost, whether the borrower or the lender pays the fees., The broker is required to itemize all its fees upfront as part of a loan estimate, including who pays the fees. But a good broker might make up for their fees and more with the savings they find.
What to look out for
The problem comes when you contract with a mortgage broker who isn’t great. That’s what happened to me and my husband when we bought our first home. We had a real estate agent who’d gotten us an amazing deal on the house. So, when he recommended a mortgage broker he had worked with before, we agreed to meet with her.
The red flags started right away. She tried to get us to sign forms that hadn’t been filled in with loan details yet to “speed up the process.” And despite the hard limits we set on how much we could afford in a monthly payment, she kept presenting us with loan payments we’d never be able to make. The worst was how she kept rushing the process and waving away our concerns, insisting we trust her because she was a professional and had been doing this kind of work for decades.
Unfortunately, we believed her. We ended up with a loan that mostly worked with our monthly budget and were ready to close on the house and move in before our next apartment rent check was due. It wasn’t until the next year that we found out she’d fudged the math to get a payment we’d agreed to, which meant our payment increased by almost $400 a month for the next two years to make up the difference. A year or two after that, a state inspector informed us that our broker had been under investigation when we were her clients — something she was supposed to disclose to us and hadn’t — and asked us for a written statement about the problems we had.
Like all mortgage brokers, she had access to a vast list of mortgage programs across banks and less traditional lenders. She knew who offered the best rates and where to find specialty loans willing to work with first-time home buyers. She was supposed to save us time, stress and money. And a good broker may do that for you. Never hesitate to ask your mortgage broker questions, and vet them thoroughly. After all, it is your financial future on the line.
How to be your own broker
With the tools available today, you can do your own mortgage research with only a little extra effort, and the online presence of mortgage lenders can make it fairly simple. Most lenders even offer prequalification applications to give you a more personalized idea of what they offer — applications that can take as little as 5 to 10 minutes to fill out.
To get started, check with your own bank to see what kind of deal they’re willing to offer you. Traditional banks sometimes offer relationship discounts that can shave points off your interest rate. For example, a common discount offers up to .25% off if you sign up to make automatic payments on your mortgage. You may also get additional discounts for having a certain account type or keeping a set balance in your savings account.
You should research your local credit unions as well, whose profits are dispersed among its members instead of to investors. This allows them to offer better rates on mortgages and other loans. You’ll probably need to become a member to get the best deal, so make sure you only approach credit unions with fairly open memberships.
Loan marketplaces allow you to enter your financial information once and get several offers from the lenders contracted with that marketplace. But even if the marketplace lists dozens of lenders, you’ll typically only see five or six offers. And be prepared to see an uptick in the spam you get from then on.
You can also choose to be your own marketplace without the limits and spam. Once you have a list of lenders you want to check out, doing your research to compare lenders might take a little time but could save you a lot of angst in the end. Using a compare site allows you to read reviews and use compare tables to get a quick snapshot of how each lender differs. Compare sites can also answer general industry and market questions and offer tools like mortgage calculators to make sure you’re fully educated to make the best decision.
Regardless of how you choose to approach your quest for a mortgage, it’s important to do enough research to understand the industry terms and process. The more you know, the better prepared you’ll be to recognize when things aren’t going the way they should and the more assured you’ll be that you got the exact right loan for you.
Heather Petty is a personal finance writer at Finder, specializing in home and personal loans. After falling victim to a disreputable mortgage broker when buying her first home, she’s on a mission to help readers avoid similar experiences when managing their own finances. A self-proclaimed word nerd, her writing has been featured on MSN, Credit.com and MediaFeed, among other top media.
This article was produced and syndicated by MediaFeed.
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