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How to shop for mortgage brokers
Purchasing a home is the biggest investment that most people make in their lifetime. So, it's important to get a good deal. However, finding the best home loan available can be difficult.
A mortgage broker can help. But how do you know if you are dealing with a good mortgage broker. SuperMoney makes it easy to review the rates, fees, and terms of mortgage brokers. It also allows you to read reviews from other borrowers who dealt with the broker you are considering.
Why do you need a mortgage broker?
Not everyone needs a mortgage broker. Millions of Americans organize their own mortgages directly with lenders. However, thousands of U.S. mortgage lending companies exist and they are of various types. Further, the rates and terms that lenders offer vary greatly from one to the next, even for the same person with the same qualifications.
To find a competitive offer, you have to shop around. The problem is, comparative shopping can be time-consuming and confusing. That's where mortgage brokers can step in to help.
What is a mortgage broker?
A mortgage broker arranges home loans between borrowers and lenders. They typically have access to a network of lenders with a variety of loan products and help borrowers find a competitive solution.
The downside is that borrowers who hire mortgage brokers have to pay a broker fee for the service. Additionally, you can't always trust a broker's recommendations. They are not obligated to offer you the best deal unless they are also your agent.
So how do you find a good, affordable mortgage broker you can trust? The questions below will help you find the best broker for you.
How do you compare mortgage brokers?
Follow these guidelines to find a mortgage broker who will partner with you to find the best overall value on your home loan.
What are the eligibility requirements?
First, you need to find out if you will qualify with the broker. Let them know exactly where your finances stand right away. Be open about your income, credit, and any skeletons in your financial closet. By doing so, the broker will be able to analyze your situation and figure out if they can help you. Why waste anyone's time, right?
Some brokers specialize in helping specific groups of people such as those with great credit and high income or vice versa. Check to ensure you have a broker that matches your situation.
What is their lender network?
Next, ask your broker how big their network of lenders is and what type of lenders it contains. Common lender types include:
- Banks. Financial institutions funded by customer checking accounts, savings accounts, and investments. Banks often have a decent line-up of mortgage product options but longer processing times and stricter eligibility requirements.
- Credit unions. Financial institutions owned by account holders/members which often offer low-cost mortgages. Underwriting guidelines may be stricter and loan products tend to be more limited.
- Mortgage lenders. Financial institutions that solely originate and fund loans against real estate. They often have faster processing times, flexible approval requirements, and a comprehensive range of loan products.
What is their reputation?
You can learn about a broker's quality of service and trustworthiness by looking into their reputation.
Try to find answers to questions like: How much experience do the mortgage brokers you are considering have in their position? Are past customers satisfied? Are they known for quickly responding to client needs, serving them, and helping to ease the mortgage process? Do they offer fair pricing?
You can interview potential brokers but it may be hard to get straight answers to all these questions. SuperMoney's reviews from past customers are an excellent tool.
What are the broker fees?
Find out how much your broker charges for their service.
Broker fees may be charged to lenders or borrowers (never both) in the form of points paid at closing, percentage points on top of your interest rate, origination fees, or some combination. Ask brokers how their compensation works and how much it will cost you.
A few tips:
- If a broker asks for an upfront payment, walk away.
- Beware, the way a broker is paid may cause a conflict of interest. For example, if they are paid a percentage of your loan amount, the higher your loan, the more they make. Keep this in mind.
- If they charge you more for a loan product than it actually costs, they often get to keep the difference as extra compensation. The extra cost may be built into the interest rate, fees, or points.
Lastly, the rate a broker offers you is not always final. You can try to negotiate it down.
What rates does the mortgage broker offer?
Ask a broker for the mortgage interest rates they can offer. Find out if the rates are low according to recent trends or if they expect them to drop further in the near future. Also, find out if they offer adjustable rates, fixed rates, or both.
If the rates are adjustable, find out:
- The starting rate.
- The maximum rate for the current year.
- Caps on rate and payment for each year throughout the loan.
- Which index will be used.
- The margin added to the index.
- How frequently the rate or monthly payment amount will change.
You want to ensure the rate won't increase and exceed your budget.
For both fixed and adjustable rates, ask what your loan's annual percentage rate (APR) will be. This percentage takes into account the interest plus broker fees, points, and other charges you will be required to pay.
The lower the interest rate and APR you can get, the better. However, the APR is not the only factor you should consider when comparing brokers.
Do you have to pay points to get the APR offered?
A point is equal to one percent of a home loan's principal amount. For example, one point on a $100,000 loan equals $1,000. Points may be paid by the borrower, seller, or both.
Lenders can charge points to provide additional compensation to the broker or themselves and to cover origination costs. Additionally, discount points can be voluntarily paid by the borrower to lower the interest rate.
Find out if you will have to pay your broker and/or lender points and how much they will be.
A lock-in is a written agreement that allows you to secure rates and terms for a set period. It ensures you get a deal even if your sale isn't closing immediately.
Find out if you will be able to lock-in a loan offer and how much it will cost. Additionally, ask when the lock-in occurs and how long it will last. Further, if the rate drops after a lock-in but before closing, find out if they will let you lock-in that rate.
These answers will help you determine if the lock-in offering is a good fit for your situation.
Once you get a loan offer from a mortgage broker, check the fee breakdown, basic loan information, and closing costs.
What loan fees will the mortgage broker charge?
Common fees include:
- Underwriting fees.
- Broker fees.
- Origination or underwriting fees.
- Application or loan processing fees.
- Appraisal fees.
- Attorney fees.
- Lender fee or funding fee.
- Document preparation and recording fees.
- Credit report fees.
- Prepayment penalties.
What should I look at when comparing mortgage broker offers?
Look at the following components of loan offers from mortgage brokers and compare them against each other.
- Mortgage type (fixed-rate, adjustable-rate, conventional, FHA, etc.).
- Minimum down payment requirement.
- Length of the loan.
- Contract interest rate.
- Monthly private mortgage insurance premium (PMI).
- Annual percentage rate (APR).
- PMI requirement.
- Estimated monthly escrow for taxes and hazard insurance.
- Estimated monthly payment amount (includes principal, interest, insurance, PMI, and taxes).
You can find most of this information on the three-page loan estimate form which is required by law. The form was implemented in 2015 to standardize home loan offers and it makes it easy to compare them side-by-side. The form must be provided by mortgage lenders within three days of submitting a home loan application.
Lastly, compare the closing costs. These typically include:
- Prepaid private mortgage insurance (PMI).
- Surveys and home inspections.
- Flood determination.
- Title search/title insurance (for you and the lender)
- Estimated prepaid amounts for payments to escrow, hazard insurance, taxes, and interest.
- Total costs.
By considering the above information, you can fully vet mortgage brokers to find the best one for your needs.
Find the best deal on your home loan
In addition to vetting mortgage brokers, there's one last tip to help you get the best deal. Negotiate.
Once a broker breaks down all the costs and fees of the loan, compare it to other offers and see what you can negotiate down. If one lender offers a lower fee or APR, you can use that against another. But be sure when a broker reduces one fee, they aren't raising another one somewhere else.
Once you come to an agreement, secure it by requesting a written lock-in. Written lock-ins should include your interest rate, points to be paid, others costs, and the amount of time your lock-in lasts. Then, move ahead with your home purchase and loan process. By following this guide and performing your due diligence, you can rest with peace of mind in knowing you got a great deal.
Ready to get started? Compare leading mortgage brokers side-by-side below!