This is a gues post by Betsy Falwell
I remember shopping around for my first mortgage. I was 24, less than a year into my first “adult” job, and absolutely clueless. My husband and I started looking for home loans at what seemed like the most obvious place: our bank.
We ended up with a decent mortgage, but years later as I play Monday morning quarterback – and start shopping for a mortgage on house #2 – I realize the error of my ways. This time, although my husband and I are talking to banks and other financial institutions that deal with home loans, we’re also working with a mortgage broker.
Misnomers About Mortgage Brokers
Back when I was that naïve, 24-year-old first-time homebuyer, I had the following misconceptions about mortgage brokers:
- They only worked with rich customers.
- They only sold home loans for very high-end properties.
- They charged an arm and a leg for their services.
My impressions about mortgage brokers – and the industry, as a whole, couldn’t have been more wrong. That’s especially true today, thanks to the Truth in Lending Act, which took effect in the United States in 2011. Under this legislation, mortgage brokers are prohibited from taking commissions based on anything but the home loan’s amount – this prevents brokers from selling you a more-expensive product in exchange for a more lucrative commission on their part. Another key factor of the Truth in Lending Act is that it stops brokers from receiving payment from both the lender and the borrower within the same transaction. In other words, if your mortgage broker is receiving a commission from the lender – which is the case for the vast majority of home loans – then you won’t be charged a single penny.
Shopping Around for Home Loans
My first time around shopping for home loans, I tried to do it all myself. First, I contacted the bank where I had my checking account. Then, I contacted a competitor. I thought I was doing myself a huge favor by comparing home loans, and while I was to an extent, I wasn’t going far enough.
That’s where a mortgage broker comes in.
It’s a mortgage broker’s job to do the home loan comparison for you. A broker can take the information you give him about the property you wish to buy and do all the research (and, just as importantly, the paperwork) on your behalf.
When my husband and I first met with our mortgage broker as we were launching the home loan comparison process, he asked us a few simple questions:
- What do you think the purchase price of your new home will be?
- How much do you plan to put as a down payment?
- What is your monthly gross income?
- What are your credit scores?
He was able to take all this raw data and give us a clearer picture of what our payment options would be for several home loans. He compared 30-year fixed mortgages with 15-year fixed products; he showed us how a 20-year loan is feasible middle ground between the two. He showed us how adding just a few hundred dollars more in a down payment could help reduce private mortgage insurance; he also showed us some lending options that would eliminate PMI altogether.
Most importantly, he was able to compare home loans from a variety of institutions all at once: banks, credit unions, online lenders. It would have taken me weeks to make all the necessary phone calls and do all the necessary paperwork to get these quotes; he managed to have it done for us in a few hours.
As a self-employed freelancer, the process of applying for a mortgage is even tougher, as many lenders want to see two years’ worth of tax returns to back up my income, as opposed to my husband, who only needed to show his last two pay stubs (how’s that for unfair?). Our mortgage broker went above and beyond to make sure we had the right paperwork, while also thoroughly reviewing my taxes to ensure we got the max gross income.
Mortgage brokers are ideal for individuals with special circumstances – whether it be self-employment, previous foreclosure or short sale, or even past bankruptcies. But in reality, the new laws of mortgage broking make it easier – and more affordable – than ever to have one on your real estate team.