Did you know traditional financial institutions provide only 1/3 of all mortgages? It’s true—mortgage brokers sell the majority of home loan products today.
Considering how much time and money a home loan broker can save you, that’s no wonder. Brokers help their clients access lower rates, a broader range of products, and even mortgage products for low-credit borrowers.
If you’ve never heard of home loan brokerage, you aren’t alone. That’s why we’re bringing you this guide to mortgage brokers and how to work with them. Keep reading for everything you need to know.
What Is a Mortgage Broker?
You can think of a licensed mortgage broker as your key to unlocking a whole new world of home loan products.
Mortgage brokers have industry connections. Through those connections, they can access products you, as a general consumer, can’t. Brokers offer a wider variety of mortgages than traditional lenders, including loans for borrowers with poor credit.
How do they do it? Any good broker will have access to wholesale mortgages—loans traditional lenders don’t offer to general consumers. Wholesale loans have lower rates than regular loans (called retail loans), which will save you money in the long run.
Why Choose a Mortgage Broker Over a Traditional Lender?
Traditional lenders include institutions like banks, mortgage companies, and credit unions. Unlike the deals brokers get, customers can only access retail mortgage loans at retail rates. Again, these rates are much higher than what a broker can find for you.
With a mortgage broker, you’re also saving time and energy. Your broker will do all the loan shopping, application filing, and rate comparisons for you. All you have to do is choose the lending product that best suits your needs.
Of course, a mortgage broker’s services don’t come for free. You’ll pay a small origination fee when you close the deal on your new home. This fee is usually a percentage of the wholesale mortgage rate to keep your costs low.
While it’s true that you won’t have to pay the brokerage fee with a traditional lender, it will cost you in time. You’ll have to shop and apply for the different home loan products on the market. Then, you’ll have to compare each loan before making a final decision.
Compared to the traditional lending model, going with a broker will save you countless hours and dollars on your mortgage. Yet, not all brokers are created equal. Keep reading to learn some tips and tricks to finding and working with mortgage brokers.
Dealing With Mortgage Brokers 101
These days, a broker is a borrower’s number one point of contact for a home loan. As such, the government has placed regulations on the mortgage brokerage industry to combat predatory lending practices.
Keep reading to learn about some of these rules, plus how you can ensure you’re working with a high-quality, reputable broker.
1. Brokers Are NAMB Licensed
When you work with a bank’s Loan Officer, they may or may not be licensed. And an unlicensed lender should make you nervous. Why?
Regulatory bodies like the National Association of Mortgage Brokers (NAMB) oversee licensed mortgage professionals. Before receiving a license, a lender must obtain an education, pass licensing exams, and pay fees. These processes help prevent potential predators from entering the space.
And licensing doesn’t only make finding a reputable broker easier. It also improves the quality of brokerage services. Licensed mortgage brokers are held to higher standards than their unlicensed peers.
When a licensed lender doesn’t adhere to regulatory body standards, the board can revoke the license. That way, you know you’re always getting a high-quality mortgage loan professional when you choose a licensed broker.
2. Brokers Are Legally Required to Find You the Best Rates
A 2008 Federal Reserve rule mandates that a broker’s mortgage rates be lower than a traditional lender’s retail rate. If you recall, retail mortgage rates are what traditional lenders offer consumers. They’re also much higher than wholesales rates.
The Loan Originator Compensation Amendment protects consumers like you from predatory brokers. This Federal Reserve mandate de-incentivizes brokers from steering borrowers to high-cost, high-risk loans.
This rule also eliminates the “yield spread premium.” This was a payment loan originator previously received from banks in exchange for promoting high-cost loans. The Federal Reserve rule, which went into effect in 2011, keeps consumers safe from these risky mortgages.
3. A Broker’s Fee Should Be Less Than or Equal to the Amount You Save
Some mortgage shoppers get deterred by a broker’s fee. They think this added fee increases the total cost of the loan—but that’s not true. The amount a broker takes in fees should always be less than or equal to the amount they save you.
You’re looking to hire a mortgage broker to save you time and money. If a broker costs you more than you save, he or she isn’t fulfilling the brokerage value proposition. And it’s time to find yourself a new and better broker.
4. Be Wary of “Specialty” Mortgage Brokers
Another aspect of the mortgage broker value proposition is that brokers can access products you, as a general consumer, can’t.
Mortgage brokers aren’t explicitly affiliated with a single lender. Instead, they work with multiple lenders to offer various loan rates and terms. This is why brokers can provide the broadest range of mortgage products.
Wholesale loan rates and low-credit offerings should be available through your broker. Your broker should never “specialize” in a particular type of loan because this can lead to a smaller range of loan offerings. At that point, what’s the advantage of going through a broker at all?
5. Good Brokers Foster Long-Term Client Relationships
Good brokers know that first-time homebuyers are their most important clients. First-time homebuyers offer the potential for more business, whether that means refinancing your home loan or mortgaging your next home.
For this reason, your first mortgage broker should take care to foster the relationship. This means communicating with you clearly. All communications should also be courteous and professional, which includes responding promptly to your inquiries.
A mortgage is a considerable investment. You don’t treat your finances as a joke, and neither should your broker. That’s why it’s so important to choose a broker who values you and seeks to form a long-term professional relationship.
Use These Tips to Hire a Mortgage Broker
Are you searching for a “mortgage broker near me?” You’ve come to the right place. The Lindley Team provides traditional bank loans and brokerage services, and we’ve been helping clients find competitive deals for ten years.
Contact us today and start the application for your very first Oregon home loan!