As you start your career and achieve some financial stability, you will likely start to consider purchasing a home. Even for an attorney, it can be a lot to know the ins and outs of mortgages, along with finding the time to get the best mortgage possible. In order to get through some of these hurdles, some people use a mortgage broker. Put simply, a mortgage broker is a middleman to help borrowers and lenders negotiate mortgages, whether it be for a first-time homebuyer or for a homeowner engaging in mortgage refinancing. Sometimes they can get you a better rate than you would get elsewhere. This article further explores what a mortgage broker is and some alternatives to using one.
What is a mortgage broker?
It is always a good idea to shop around, and mortgages are no exception. As a result, many home buyers use mortgage brokers to gather potential mortgages for you to consider. The mortgage broker will also assist you in qualifying for the different potential mortgages by compiling all of your important financial information, like your credit score and credit report, along with your down payment. The broker will use your financial information to calculate the best home loan for you by giving your information to the mortgage lenders and seeing what they can offer.
When you choose your mortgage, the lender will provide you with the actual mortgage, and the mortgage broker will receive a fee for their work. Technically the lender pays this fee, but you as the borrower may be responsible for part or all of the fee, depending on the terms of the loan. The mortgage broker only gets paid if you take out a mortgage. The mortgage broker will help you with the loan application itself.
How to find a mortgage broker
It is important to find a good broker. While you could easily find one online, you should look for one that suits your needs. If you have a particular concern, such as your credit history, juggling the mortgage with student loans, or pursuing a large loan amount, you should look for a broker that specializes in these areas.
It is also best to go with a licensed broker. They can only get licensed by the Nation Mortgage Licensing System and Registry. You can check their national website to see if your broker is licensed. The website will also have information on how to find out if your broker has been disciplined.
Moreover, you can shop around with brokers by meeting with them and even try them out for a bit to see if they have time for you and take your needs into account. Be careful with this though, because at some point, a mortgage broker may have you sign an exclusivity agreement with them.
You should also seek to get as much information upfront as possible. See if they will give you any disclosures or guarantees, and review them thoroughly.
In addition to looking for a mortgage broker online, you can also reach out to friends and family to see if they had one that they enjoyed working with. Moreover, if you are already working with a real estate agent, you can see if they can offer you a referral.
Should you use a mortgage broker?
The pros
There are several advantages to using a mortgage broker. First, a broker will likely provide you with access to a greater variety of lenders because a mortgage broker will always have more time and resources than you.
Additionally, the established relationships they have with these lenders will allow more flexibility in the mortgage process. This can help create a more customized mortgage that reaches what you need. A mortgage broker’s experience in negotiating, along with their abundance of resources, will often lead to lower interest rates and cheaper fees than you would otherwise get for a mortgage on your own. Some would argue this results in the best mortgage rates. They may be able to eliminate the origination fee.
Using a broker will also typically save you time by doing a lot of the legwork. Even seeking information on one mortgage from a lender can take a lot of time on your end. The mortgage will handle a lot of the bureaucracy for just about as many or as few mortgages that you are interested in.
Finally, mortgage brokers will sometimes be willing to go beyond their basic role and help you with other financial factors that come with getting a home loan. If you need to build credit or leverage assets to get a better interest rate, they can assist you in that.
The cons
In terms of the disadvantages of working with a mortgage broker, the first is that not all mortgage lenders work with mortgage brokers. You may lose out on some favorable mortgage rates, since at least some lenders do not work with mortgage brokers because they are able to attract consumers without a broker.
Additionally, the broker fee may be so large that it wipes out the money you saved through the actual mortgage that they negotiate for you. Since some of the value of going with a mortgage broker is saving time, the financial value of saving time is subjective and may not be worth it to you. So you might not actually get the best loan through a broker.
Moreover even though the brokers’ many relationships can prove beneficial, this can also serve as a detriment because the broker may be deferential to certain lenders, even if they do not offer you the best mortgage. Since the broker is paid on commission, they may be looking to get as many mortgages as done as possible, so they might not fully search for the best possible mortgage for you.
Furthermore, sometimes there might be an accidental bait and switch, where the mortgage broker gives you an estimate of the mortgage rate they think they can get you, but when the final deal comes through, you end up paying more than you planned due to various closing costs.
Many of these disadvantages can be avoided by doing proper research as advised above.
Alternatives to a mortgage broker
There are three main alternatives that home buyers use instead of a mortgage broker. The first is working with a loan officer from a direct lender. When you go through a loan officer, they will work for a financial services institution, such as a bank or credit union, and walk you through the loans available from the entity that they work for. Your loan options will inevitably be smaller because the mortgage officer can only provide whatever their institution provides. If you want to compare mortgages from different lenders, you will typically need to speak with loan officers from multiple financial institutions. Like a mortgage broker, they will work with you through the mortgage application process and seek to get you approved.
Another option is a mortgage banker, a person who works for a group that conducts mortgages itself. But often they will then sell the mortgage loan to someone else. Since they are looking to market mortgages out, they will typically offer more mortgages than you would receive from a loan officer.
The final alternative is to go directly through online lenders. When you do this, you will not deal with anyone personally. You put all of your information online, and the service will calculate whether you qualify for a mortgage and for what rate. This saves you a lot of time, because you will often be subject to a pre-approval, but online lenders are often accused of playing too loose with whom they approve, or giving out unfavorable rates.
The JD Mortgage makes it easy for lawyers to get a low to no down payment mortgage with relaxed debt-to-income ratios, and we have vetted the lenders for you.
What to consider next
Although deciding whether to get a mortgage broker can itself be a major process, there are other things to take into account when going through home buying. When you are balancing investments, mortgages, and various kinds of insurance, you should consider whether a financial advisor could help you balance all of these personal finance factors to create the best financial situation for you.
On top of the mortgage rate, you should also consider the actual cost of the home. Engaging in a pricey home purchase is a way to build equity, but if it is too large it can also take away from other elements of a financial nest egg, such as investments or a rainy day fund.
Both when you are negotiating your mortgage and after you have successfully taken one out, you should look at strategies to pay your mortgage off early, to save money on the interest. While your Biglaw salary may be an asset in this goal, there are additional strategies you can employ to accomplish this.
Todd Carney is a graduate of Harvard Law School. He holds a Bachelor’s degree in Political Science and Public Communications. He has also worked in digital media in New York City and Washington D.C. The views in his pieces are his alone and do not reflect the views of his employer.
