What to Consider for Mortgage Brokers
A mortgage broker is a crucial resource to help you address all the following elements of a mortgage. As such, choosing the right mortgage broker can make or break your decision on the type of mortgage you will be tied to long-term.
When it comes to mortgages, the first question potential home buyers want to know is the mortgage interest rate and the best rate available to them. However, mortgages are more than just about rates alone. The health of a housing market, for example, can affect your decision to choose a mortgage that works for you.
Transparency in the Application Process
Make sure your mortgage broker is upfront about the mortgage application process and keeps you in the loop. Historically, underwriting and the loan application process have remained ambiguous to clients, this is partly due to clients not being able to easily access important details, such as average closing time, and to track their application’s progress.
Today, the loan application process is readily accessible to clients by means of online platforms many mortgage brokers provide to allow clients, especially first-time home buyers, to track their application’s progress. If the mortgage broker you are considering does not have an online platform, you will want to uncover the following pieces of information before you sign with them:
- Lender and third-party fees (Request that these be provided in an estimated fee sheet.)
- Average time to closing
- Specific loan product requirements for debt-to-income ratio, down payment, credit score, etc.
- Timeline to lock and cost in a mortgage rate
- Which documents you need at each point in the loan process and their respective submission deadlines
Consider working with a mortgage broker who works with local lenders. Many sellers and listing agents prefer and trust buyers who side with local lenders for transparency and the local lender’s knowledge of the local housing market.
The rates for these local advisers can be pricier than those who are out-of-state, especially if your local housing market is incredible competitive with more buyers than homes. However, having a local mortgage broker who has good connections with the local lenders can help your competing offer expertly navigate the wave of other competing offers from other potential buyers.
Working with a local adviser and lender may pay off in the long run, even if it means foregoing cheaper options.
Understand Payment Preferences
Mortgage brokers make money in two primary ways: fees and yield spread premiums.
Fees usually come in the form of points, where one point equals 1 percent of the loan amount. Most brokers list this as the mortgage broker commission or lender’s origination fee. Additionally, other fees from the application, document preparation, processing, etc. are also included but you only pay for the fees you accumulate.
Yield spread premiums work differently. Say, for example, that you qualify for a loan at 7 percent interest, but your mortgage broker convinces you to take a loan at 8 percent. As a result of this, the broker receives a payment that could be several thousand dollars; this payment, made from lender to broker, is called the yield spread premium. While yield spread premiums are not intrinsically bad, they serve to help the broker and lender over the borrower.
Ask the mortgage broker how they will be compensated and consider whether this will have a positive or negative impact on your dealings with them.
Ask About Rate Locks
A mortgage rate lock is “an offer by a lender to guarantee the interest rate of your loan for a specified period of time” (Nerdwallet). This means your interest rate is, yes, locked for a set period of time and does not suddenly fluctuate. However you may have to pay a fee for it.
Some mortgage brokers take their chances gambling with rate locks. When you tell them what rate you want to lock on, they will agree to it verbally but afterwards, go looking for lower rates with the intent to keep the difference for themselves.
In order to avoid this, ask for a loan commitment letter from the mortgage lender itself. This should outline the interest rate, the date you locked the rate, and when that lock expires.
While a novice mortgage broker may be able to get you a good deal, experienced mortgage brokers provide invaluable quality assurance and peace of mind. Try to exclude mortgage brokers who have less than three years of experience from your search.
Also keep in mind that mortgage brokers have different niches. As a potential home buyer, you should be working with someone who specializes in brokering for homes, not a lender who specializes in brokering for businesses.
[Related: Important Tips for Millennial Home Buyers]
If you found your mortgage broker from an advertisement or an online search, ask for the contact information of the two or three most recent customers who closed their loans with the mortgage broker and lender you are interested in. Follow up with those references by calling them and asking how they felt the mortgage broker treated them. Be sure to ask if they would do business with the broker again.
Trust Your Intuition
First and foremost, you should feel comfortable with the mortgage broker you are considering to work with. You should feel that your potential adviser is going to take care of you and that when push comes to shove, they have your back.
Make sure your mortgage broker is accessible, and will return your calls and emails in a reasonable amount of time. Ask if you’ll be able to reach them after hours whenever necessary.
If a potential adviser is at all condescending during your first meeting, trust your intuition. You need to be comfortable enough to be honest and ask any and all questions that you have.
And last but not least, asking about rate is important. The rate mortgage brokers are offering should be in line with the other local lending options in the housing market. Instead of asking what the current mortgage rates are, directly ask the potential adviser what rate you can get. Have six pieces of information ready:
- Your credit score
- The amount of money being lent
- The length of time over which you are paying it off
- Whether it is a fixed rate or not
- The type of loan
- The amount you have saved for the down payment
[Related: Sign Up for Our Mortgage Rate Watch]
For something as important as a mortgage, you need to work with someone you can trust, who will not just provide statistics about the best mortgage and rates available but offer insight and collaboration to determine the best mortgage and rates that will benefit you in the long run. Contact Seattle Mortgage Planners today to start your mortgage application process!
Seattle Mortgage Planners has been in business for over 10 years. We offer extremely competitive rates and require no application fee, but more importantly, we provide the convenience and security that are essential in a quality mortgage adviser. We’re available evenings and weekends to answer any questions you may have.
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