Buying a new house can be a nerve racking process. Finding a house with the perfect amount of square footage, number of rooms, ideal layout, land/yard, all in just the right location can be an exhausting exercise. Not to mention figuring out how you’re going to pay for it. Whether you’re a first time home buyer or you have been around the proverbial block, committing to the purchase of a home is one of the most important financial decisions you will likely ever make, and, thus, it deserves not to be taken lightly.
While we money nerds at Stacking Benjamins cannot tell you anything about what the size/style or the location of your house is best for you, we do know a little bit about how to buy a house and get the best deal possible. Specifically, whether working with a mortgage broker makes sense or not.
Let’s jump into what a mortgage broker is, and lay out some of the advantages and disadvantages of working with one.
What the heck is a mortgage broker?
If you’re buying (or refinancing) a house, you want to get the best deal possible. Since there are so many different lenders out there with different rates and terms, finding the best fit on your own can be a time consuming and frustrating process – and you still are not guaranteed to find the optimal fit. That’s where a mortgage broker comes in. As the name suggests, a mortgage broker specializes in working with you to help narrow down choices that make sense for you and serving as a go-between to broker a win-win solution.
As always, buyer beware. Let’s explore three potential pros and three potential cons of hiring a mortgage broker…
Pro #1: Potential huge time saver
Because mortgage brokers maintain regular contact with multiple lenders, working with a good one will provide the opportunity to streamline competing offers from the broader marketplace.
The right broker will meet with you up front and ask crucial questions to get an idea of what you are looking for – in terms of physical characteristics of your new property as well as get a handle on your monthly budget dedicated to paying the mortgage. He/she will then take your specifics and shop around the marketplace and utilize his/her network to match you with competing offers from a short list of lenders.
Con #1: A broker’s interests may not align with yours
I mentioned buyer beware and the right broker above for a reason. And that the right mortgage broker will ask questions to make sure that your needs are met when fielding offers from lenders.
If we’ve learned anything from the 2008 real estate crash that nearly took down the US economy, it’s that having a mortgage broker who is not reputable can lead to disaster: first to the borrower, then, if there are enough poorly written loans, the lender. Needless to say, it’s important to understand your broker’s motives and how they get compensated. When possible, go with the broker whose interests are in alignment with yours.
Pro #2: A mortgage broker may have access to lending options not available to the general public
Some lenders work exclusively with mortgage brokers. When you think about it from a business perspective, this makes sense in some cases. Mortgage brokers are experts in zeroing in on referring the correct borrowers with the correct lender.
Why would lenders who are out to make a buck waste time sifting through numerous mortgage applications from potential borrowers – many of whom may just be a waste of time and man hours? It’s a time and money saver for lenders to work with mortgage brokers who do the legwork and act as gatekeepers.
Con #2: A mortgage broker may not (necessarily) source the best deal for you
While there are many instances that a mortgage broker can get you access to better deals than you otherwise could on your own, as mentioned above, this is not always the case.
It never hurts to shop around on your own to see what offers are available to you directly. Don’t always take what your broker tells you at face value.
Pro #3: A mortgage broker may be able to manage/reduce fees
Because many mortgage brokers have a strong network of lenders to tap, some of these lenders will offer them incentives to choose their business. These savings could be passed on to you, the borrower, in the form of origination, application, and appraisal fee waivers.
The right broker will always follow Dr. Steven Covey’s timeless advice from The 7 Habits of Highly Effective People, and “Think win-win.”
Con #3: You may owe a broker fee
While this shouldn’t come as a surprise, since everybody is out to earn a living, your broker fee may be added to the final home closing statement. Be sure to understand how he/she gets compensated before agreeing to use his/her services.
Do the math to calculate if hiring a mortgage broker makes sense for you.
Now that you’re more familiar with the roles and some of the advantages and disadvantages of a mortgage broker, put the work in to determine if you want to bring one on board. If you do, and he/she turns out to be a trusted advisor, it may be well worth it in the long run.
On the other hand, if you are comfortable with going on your own, and you have the time and patience to do the work, then it could make sense to do it on your own.
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