One of the largest purchases most people will make in their lives is the purchase of a new home or property. Owning real estate is a great way to build wealth, gain equity and prepare for your future. Not to mention all the physical benefits that come with owning your own home and shaping it into the dream home you’ve always wanted.
But, before you can make all your dreams a reality, you first have to save enough money to afford a down payment on a home. After saving enough money, you are likely going to work with several professionals in the real estate industry, including real estate agents, loan officers, home inspectors, and, of course, mortgage brokers.
These professionals all provide their own necessary services. These include helping you find a home, securing a loan from a financial institution and ensuring that any potential property is up to the standards expected of it. Mortgage brokers only perform one of these functions, namely the securement of a loan from a financial institution. However, the process they use differs from that of a loan officer.
How Loan Officers & Mortgage Brokers Are Different
Loan officers often represent a single financial institution or bank and work with their clients to choose the best mortgage product available for them. By contrast, mortgage brokers work with a range of financial institutions while still providing the same core service of choosing the best mortgage product for their clients. By working with multiple lenders, these financial professionals can often offer lower interest rates, upfront costs and more.
How Mortgage Brokers Make Money
Usually, it is about this time where many people begin to feel wary about mortgage brokers. “How do they get paid, what’s the catch, and why doesn’t everyone use them” are all common and expected questions. Let’s go through each of these questions to better understand the true value of a mortgage broker and put many of these fears to rest.
How Do Mortgage Brokers Get Paid?
Mortgage brokers are paid a percentage of the total loan amount of any loans that they broker. Their fees typically range from 1-3% of the total cost of the loan. The broker’s fee is commonly paid by the financial institution, but they sometimes are paid from the balance of the loan.
Why Doesn’t Everyone Use Mortgage Brokers?
As it turns out, mortgage brokers are actually only growing in popularity over time. The reality of the service they offer is that those they service benefit no matter what. If they meet with a broker and decide not to work with them, they still leave with the knowledge and information they learned during the meeting. Similarly, if one does choose to use their services, they may save thousands of dollars by securing a lower interest rate.
Additionally, mortgage brokers are not exclusive dealers, meaning that they do not stop you from speaking with other financial institutions or brokers. Therefore, you can choose to shop around even more to find the absolute best deal for your situation. So, what’s the catch for this exceptional service?
Ultimately, the catch is the same one that you find whenever hiring professionals to assist you. The experience you have, broker to broker, may vary for the worse or better. In some cases, brokers may try to push you towards a particular product since they know it will result in a large commission, and others may not be familiar with the particulars of your exact situation. Still, for the many possible benefits of their service, it is often more than worthwhile to hear what they have to say. Happy house hunting!