You often hear people refer to mortgage brokers as the middleman between buyers and lenders. What exactly does that mean? Lenders, of course, provide buyers with the loan for a mortgage to buy a home. While lenders are an essential part of buying a home, there’s often some confusion about where the broker comes in. If they aren’t providing the mortgage itself, how are mortgage brokers involved?
In fact, brokers do a ton on the client’s behalf. Consider a broker the eyes and ears of your home buying process, filling you in on details and supporting you as you secure your mortgage product. Brokers are extremely helpful and invaluable to their clients. But how, you may ask?
Products and rates
Each lender offers their own mortgage products and rates. A broker’s job is to weed through lenders to find one that matches the specific needs of their client. Any kind of mortgage need, from securing a first mortgage to refinancing or renewing, will have various lenders offering different terms. While lenders try to sell clients their own products and rates, brokers are objective. They communicate with both the client and the lender.
When you’re in the market to buy a home, you might not even know what kind of mortgage type is best for you. You may also be unsure of the rate you can realistically expect, or what length of term suits you best. Getting mortgage brokers involved when buying a home means securing the help you need to narrow down your options. Instead of trying to navigate the process yourself, a broker openly communicates with you to help you secure the product you need at the rate you can afford.
Budgeting and down payment
You might think you know what you can afford when you’re looking to buy a home. Odds are, you have a pretty good idea of your budget, but buying a home involves many additional costs that may not have crossed your mind. Brokers know all the ins and outs of home buying costs, as well as how much you should expect to set aside for them. These include expenses like inspections, appraisals, land transfer tax, and default insurance (if required).
Brokers can also help you decide on an accurate budget for buying a home, based on the kind of property you’re looking to purchase. Most importantly, brokers help you navigate the down payment process. Minimum down payment requirements can range from 5% to 20% of the home’s purchase price. A broker will help you find the minimum amount you may be eligible for, as well as what amount suits you best. While a larger down payment is usually better, there are situations where a smaller payment can be beneficial as well. For example, clients who wish to enter the market ASAP might choose a smaller down payment, so they can spend less time saving and buy a home sooner.
As you already know, buying a home involves a lot of paperwork. The good news is using a broker takes a lot of that responsibility away from you as the buyer. You’ll have to complete documentation proving your employment and income, as well as your official offer to purchase with the help of your real estate agent. Brokers can submit all of these documents for you, which takes a fair amount of work and stress off you.
As a buyer, you will also have to sign off on and understand a variety of terms and conditions that are part of your mortgage. Brokers go through all of this with you to make sure you understand everything that impacts you and they organize your paperwork to ensure it gets to the lender.
How are brokers paid?
Many people wonder how brokers earn a living. Where does their income actually come from? The good news for you as a buyer is that you typically don’t pay for a broker’s services. Most lenders pay brokers a commission, so brokers make their money from whichever lender they connect to clients. These commissions make up a broker’s pay, and they can vary depending on the length of the mortgage term. Lenders pay standard finder’s fees throughout the mortgage industry, so you can be confident that your broker has no financial motivation to push you in any specific lender’s direction. There are some situations where you may have to pay your broker a fee to facilitate your mortgage, so be sure to ask your broker upfront to walk you through any associated fees that you need to be aware of.
Getting ready to book an appointment?
So, how do you go about getting mortgage brokers involved in your home buying journey? Your first appointment with a broker is for the two of you to get to know one another so you can begin to form a working relationship. These days, your first appointment will be virtual. It’s good to be prepared, so you can have any information ready on your debts, income, and a broad budget goal. You also want to select a professional who you think will understand and meet your needs. You can read more on finding the right broker here.
Starting the process of buying a home is exciting, and maybe a bit scary. If you have questions or you’re ready to get started on securing a mortgage, I’d love to help! You can get in touch with me here.