For a first time home buyer, a mortgage broker is really a good option. The broker can provide better rates and financial options that meet your needs. Banks on the other hand are very limited with their product options and have pretty tight restrictions.
The general idea would if fist time buying home then find a broker or use the one that your Real estate guy recommends but do bargain every step of your way. Be ready to walk away.
Once its time for renewal or you think the mortgage rates have fallen considerably then talk banks and credit unions, call your lender and do the bargaining yourself. A mortgage broker ONLY makes money by selling you to another lender. They usually make you switch lenders or else they dont get paid.
Some other points to consider if you are wondering whether mortgage brokers are needed or not
- Loan Mortgage Brokers have access to rates from multiple lenders that a typical person like you and me will not get by just approaching a mortgage bank or lender.
- Actually it doesn’t hurt to use both approaches. A good buyer usually finds a mortgage broker and checks out what they can offer. Use this to bargain and compare it to what you can find on your own. It becomes easier to decide which way to go.
- Home buyers also find mortgage brokers are helpful in navigating the various parts of a mortgage other than rates (terms, amortization, penalties, pre-payment privileges). They are really patient and explain with various examples. This is their job. Mortgages are complex and very overwhelming every time you go for refinancing or doing it for the first time.
- Loan Brokers have a self interest in getting clients to sign up for longer term mortgages, this usually provide them a bigger commission. The trick is to find a good broker and hope he/she works solely in your interest, not theirs. But also understand that this is business and they make living out of this.
- Certainly for un-conventional situations go and find a good broker, this will save you lot of time.
- Many times, a loan mortgage broker can get you approved when rejected by banks and direct lenders. Mortgage brokers really try hard to get you better mortgage with the lower rate in certain situations.
- And finally it is always nice to have someone hold your hand through the entire lending and signing process.
What is a Mortgage Broker
The term “mortgage broker” refers to any person or entity that solicits,
processes and/or places a mortgage loan with a third-party mortgage lender on behalf of a borrower.
Because a mortgage broker does not provide the actual funds for the loan, he/she acts only as an
intermediary between a borrower seeking funds for the purchase or refinance of a home and the
mortgage lender who ultimately provides these funds.
What is a Mortgage Lender
The term “mortgage lender” refers to any entity that provides
mortgage loans using their own funds. Mortgage lenders are comprised of three principal types of
lending institutions: banks, insurance companies and mortgage bankers.
A “bank” is the generic term used for any depository institution that, in addition to other banking services, places or refinances
mortgage loans using depository funds. After funding the mortgage loan, a bank may either retain the
mortgage loan in its own loan portfolio, or may resell the loan on the secondary mortgage market.
Because banks possess this dual ability, they are usually willing to make both conforming loans (i.e.,
loans that meet the necessary requirements to be eligible for sale on the secondary market) and nonconforming
loans (i.e., loans that do not meet the requirements of the secondary market and must be
retained in the lender’s portfolio).
The term “bank,” therefore, refers both to commercial banks as well as thrift institutions, such as savings banks, savings and loans, and credit unions.
Insurance companies fund mortgage loans from the insurance premiums paid to them by their
policy holders. Because insurance companies retain these mortgages in their loan portfolio, they do not
need to satisfy the requirements of the secondary market. As a result, most insurance companies focus
their lending in the area of non-conforming loans.
A mortgage banker is a non-depository entity whose
sole function is to place or refinance mortgage loans using its own funds. After closing the mortgage
loan, a mortgage banker resells the mortgage loan on the secondary mortgage market, recouping the
funds it lent, and re-lending these funds to future borrowers. Because mortgage bankers must meet the
requirements of the secondary market, they typically limit their lending to conforming loan programs.
Mortgage bankers are not depository institutions themselves, so most mortgage bankers are affiliated
with or owned by an institution that is able to provide the mortgage broker with the money necessary
to fund their mortgages.