Should I Use A Mortgage Broker Or Go Direct To A Lender?

Home purchases and refinances are big financial deals for most people. They most often involve monthly mortgage payments that exceed any other regular remittance by far. This intimidates many home loan applicants, who are now and again overwhelmed by the vast number of loan products; the sometimes mysterious financial jargon; and the frustrating tempo of the whole borrowing process. This underscores the importance of who will shepherd their loan from application to closing. Some will approach a lender by making direct contact with a loan officer. Others will opt for a mortgage broker to guide them through the financial proceedings.

What Does a Broker Do?

Essentially, a broker works as an intermediary between a borrower and any number of lenders. A loan officer can sell an array of loan vehicles...as long as they are offered by his or her respective bank or finance company. The broker, on the other hand, shops around on the applicant's behalf, finding that product and lender that are optimal for the client in terms of likelihood of acceptance and desirability of terms. First, they write up the loan application on behalf of their client; run a credit report and gather verifying documents relative to income and assets. Effective brokers develop a network of loan officers from many lenders. This gives them power to negotiate.

Is a Broker a Better Way to Get a Loan?

On the face of it, the broker might seem like the best way to go. Yet things are not always what they seem. For one thing, the broker represents an additional closing cost. There is still a loan officer who gets a commission when a home loan originates with a broker. The broker is paid a fee from loan proceeds. This fee can range from half a percent to 2.75-percent of the loan amount. The client must ask whether all the broker's preliminary legwork is worth the price.

If an applicant has excellent credit, abundant financial assets and steady employment -- or other streams of revenue -- he or she is in a strong position to receive favorable terms with or without a broker, especially when the collateral is a primary residence. Such loan seekers may not see value in retaining a licensed broker to secure the best lender at ideal terms. Lenders compete for borrowers like this. Still, a broker can save applicants time and stress when sounding out financial institutions for their clients' benefit.

A Word About Appraisals

Loan amounts are pegged to home value, i.e. the loan can not exceed a certain percentage of the market value or sales price of the property. When considering a loan application, a lender will order a valuation from a certified appraiser. From this report, underwriters can determine if the requested loan amount is feasible. Brokers are not allowed to order the appraisal of home value for the lender. If the broker charges for the appraisal, it is not the report that the lender will consider.

Those who want the services of a broker should clarify their expectations. The broker should likewise give an honest accounting of the work done to secure the best loan possible. The worth of a broker's services is measured by the terms of the loan and the efficiency of the process.