Why use a mortgage broker?
Mortgage brokers have a unique corner of the mortgage market. While a bank’s mortgage loan officers only offer the bank’s products, mortgage brokers are sort of like a middleman between the home buyer and a lot of different mortgage wholesalers and their products.
As independent agents, mortgage brokers can give home buyers a sense of comparison shopping. However, there are some things to look out when considering the question, “why use a mortgage broker?”.
Advantages in using a mortgage broker
Research has shown that home buyers who use a mortgage broker may get a better rate than home buyers who only shop at their own bank. This may be a direct result of mortgage brokers being able to compare a large number of products as a potential fit for their customers instead of just a few. In contrast, banks can only offer home buyers products that the bank is offering.
Home buyers with tricky profiles may have even more advantages
Home buyers who freelance, own companies, have different income sources, lower credit, lower down payment amounts, or other things that make them trickier to lend to may find going to a mortgage broker more efficient. Lenders qualify home buyers differently, so mortgage brokers can fit the profile of their client to a variety of wholesale lenders who can lend to that particular profile. A bank, on the other hand, may have a single qualification process for all products that they offer.
Why mortgage brokers should not be considered “comparison shopping”
Even though mortgage brokers have access to many different products, using a mortgage broker should not be considered “comparison shopping“. The reason is that a home buyer doesn’t have insight into how much a broker is getting paid for the loan they are offering compared with other options. Because of this, a home buyer does not know if a mortgage broker is giving them the best deal, or just the deal that they get the most commission on.
Mortgage brokers have different payment agreements with different wholesale lenders. It isn’t clear to a home buyer if the product being offered is the absolute best, or simply a “good enough” one that a broker will get paid more for. For this reason, a home buyer should always explore mortgage deals with more than one mortgage professional, not just rely a single broker.
Conclusion: mortgage brokers are good, but not enough
If you are buying a home, you should definitely add a mortgage broker to your list of loan professionals to get quotes from, but you shouldn’t rely on only one mortgage broker. It’s important if you want to get the best deal to set up a true competitive environment when getting a mortgage. Otherwise, you’ll be at the mercy of just one mortgage professional, and you won’t know if you are getting the best deal, or just a “good enough” deal!