An independent mortgage broker helps borrowers to connect with lending institutions, like banks, and seek out the best deal between the borrower’s financial capability and interest-rate needs. They mostly come in handy in the process of buying a home. Real estate agents may ask you if you have started discussing with a mortgage broker.
While hiring a broker is not necessary, they will surely save you a lot of time and work. Mortgage brokers have a lot of knowledge from their connections and years of experience. They also have professional information on lenders, repayment terms, and all the fees involved in a loan contract.
What are Mortgage Brokers?
That’s because mortgage brokers are basically your middleman, managing the mortgage loan process for business groups or individuals looking to make a loan and borrow money from a lending institution.
Brokers assist their clients for a minimal service fee, and they will assess the financial standing of the borrower. After making this assessment, the broker will connect you to a lender who is a good fit and provides a good interest rate that is within the borrower’s financial capacity.
What are the General Duties of a Mortgage Broker?
The scope of a broker’s work and responsibility will vary depending on the services the client needs. This could also be limited by the broker’s professional experience.
However, most mortgage brokers take care of the following duties:
- Collecting the relevant paperwork from the client (including payslips, bank statements, purchase history, etc.)
- Making a professional assessment on the financial circumstances of the client
- Conducting up-to-date market research to determine the suitable mortgage for the client based on their situation
- Assisting the client with obtaining pre-approval from a lending institution
- Completing the mortgage application loan along with the client
- Ensuring that the client understands the legal terms and conditions
- Submitting all relevant documentation to the lending institution and/or bank
- Scouting the market for money-saving options for clients
- Marketing their services to potential clients
These tasks are better categorized into the following banking activities:
- Retail banking: dealing directly with individuals and small businesses
- Business banking: providing services to mid-market business
- Corporate banking: directed at large business entities
- Land mortgage banking: specializes in originating and/or serving land mortgage loans
- Private banking: providing wealth management services to High Net Worth Individuals and families
- Investment banking: relating to activities on the financial markets
In this article, we will mostly discuss the role of mortgage brokers in retail banking.
You may be familiar with loan officers, or perhaps you have met or worked with one already. While they have similar work duties with mortgage brokers, they are not the same.
How Are They Different From a Loan Officer?
Loan officers typically work for one institution only, whether this is a bank or a private entity. They are in charge of offering mortgage loan deals and rates that come from the institution they work with.
Meanwhile, mortgage brokers work on the client’s behalf to find a lender that offers a mortgage plan that suits their client’s needs and financial situation. It is the broker’s job to screen through various lenders in the market to find the most suitable options to present to their client.
Keep in mind that not all lenders will work with a mortgage broker. Sometimes, they do prefer if clients are solely dealing with their loan officer.
How Does Hiring a Mortgage Broker Work?
Hiring a mortgage broker starts with the clients who intend to buy a new house, property, apartment, etc. The process usually begins by clients approaching a mortgage broker first. While brokers can reach out to clients, they mostly do this to market their services to whoever may be interested. It is the client’s job to set an appointment with a broker if they are really serious about getting a mortgage plan or loan.
Once the broker is hired by the client, they will start by making a good assessment of their client’s situation. This is when they will need to see the documents and paperwork as mentioned above. Other paperwork that the broker will collect may include proof of employment and income, credit reports, details of client’s assets (cars, houses, etc.,) if there are any, among others. Reviewing this paperwork is essential for the broker to determine their client’s ability to secure finances from the lender. This also helps the broker set limits for the loan, down payment, and monthly installments based on the client’s finances.
Finally, the broker will have an estimate of the appropriate loan amount, type, and loan-to-value ratio. If the client is happy with this then the broker will submit the financing application to the lender for approval.
Once the application is approved, the lending institution will release the funds as a loan to the borrower. At this point all of the paperwork is under the name of the client or borrower, the mortgage broker is excluded. The broker also collects an origination fee from the lender for their services. Brokers only receive these fees once the transaction is final.
What are the Advantages of Using a Mortgage Broker?
Brokers are often well acquainted with the reputable banks and lending institutions. This familiarity makes the borrowing process easier. Oftentimes, brokers can even get good rates from lenders because they regularly bring in well-paying clientele.
They also save their clients from a great deal of work. Clients do not have to worry about frequent trips to and from the bank or the back-and-forth between real estate agents. Brokers have enough experience and connections to oversee all these things and ensure that it goes smoothly for the client. It’s up to the client to choose a reputable mortgage broker to make sure that they are in good hands throughout the whole process.
However, there are also some disadvantages.
What are the Disadvantages of Using a Mortgage Broker?
Sometimes, brokers will be unable to find the ideal plan for their clients. Since they earn money from the lender, the broker may present a higher deal to the client – one that boosts their compensation rather than getting the best value for the client’s money. But this situation is rare and there are surely more benefits than risks to be had from having a mortgage broker.
One way to ensure that you are working with an honest broker is through conducting enough independent research on how mortgages work. This way, you are fully informed about the terms that will come up. Secondly, you will want to hire a mortgage broker with a good reputation and enough experience.