It is recommended that you work with a mortgage broker or a mortgage lender before you shop for a house. You don't want to end up falling in love with a home and then finding out you can't afford it. Getting pre-qualified or pre-approved for a loan can help you decide what price range fits your situation. So what's the difference between a mortgage broker and a mortgage lender?
A mortgage broker is basically a retail seller of a loan. They get paid a commission from the lender and a service fee from you. The service fee can include an origination fee, a processing fee, a closing fee, and/or points on the loan. The fees will be listed on the documents you sign at the title company, on the day of closing. The advantage of using a mortgage broker is that they have information on a wide range of lenders and loans that can fit your needs. A mortgage broker's obligation to his/her customer is to find the best rate possible and make sure all the documents are prepared by the closing date. To do otherwise could cause the mortgage broker to lose customers and tarnish their reputation with other real estate professionals.
A mortgage lender is the actual institution servicing your loan. A lender could be a bank, a credit union, or a quasi-government company like FNMA or "Fannie Mae". Sometimes a lender will sell the loan to the open market, but still continue to service it. The fee of a lender is typically less than that of a mortgage broker. The mortgage broker, however, might find you a better rate because they are not bound by the policies of one institution. It is, therefore, debatable that going directly to the mortgage lender for a loan will save you money.
Then who should you use? The answer is easy. Find the one who gives you the best deal. All mortgage brokers and mortgage lenders should tell you their fees upfront, so shop around. It is also a good idea, in some instances, to use a lender referred to you by your realtor. Realtors work with lenders all the time and yours might have a good feel for one that is reliable and honest. In the end, though, you should use the mortgage broker or mortgage lender that is right for you.
Mortgage Brokers And Lenders
Independent mortgage brokers are generally regarded as an excellent source of advice when searching for the right mortgage to finance or remortgage a property. Independent mortgage brokers are not tied to advising clients to use particular lenders and home loan products. Instead, they have access to all mortgage lenders and products available on the market.
In addition to independent mortgage brokers, there are tied mortgage brokers. Tied brokers are similar to independent brokers however, instead of having access to all mortgages available on the market they only have access to products from a select panel of lenders.
Mortgage brokers who work within a bank or financial institution are generally known as mortgage advisors. This type of broker will only offer advice on the home loan products made available by the institution they work for. Mortgage advisors therefore offer advice on the most limited range of products out of the three different types of brokers.
Some mortgage brokers, however, do not offer independent or tied advice and therefore provide an ?information only? service. Information only mortgage brokers do not help their customers decide upon which mortgage products are best suited to their individual circumstances or financial situation.
Instead, information only brokers will usually offer a wide selection of mortgage products and will perform the administration functions required to process the application after the customers have chosen the products by themselves.
While this may seem strange at first, the main advantage to the customer of such a service is that the customers are normally not charged a fee. Customers can therefore benefit from using information only mortgage brokers by saving money.
The main disadvantage, however, is that the customer may not select the most appropriate mortgage product for their individual situation. This can result in the customer paying more in interest and fees over the life of the loan than they would for a more suitable product.
Individuals who wish to use information only mortgage brokers should therefore have a good knowledge of the mortgage market in order to ensure they choose the right products for their individual needs. If they do not then they should consider paying for advice from an experienced broker.
Additionally, mortgage brokers sometimes have access to products that are not available on the open market. These are known as ?exclusive deals? and each of these deals will normally only be available to the clients of a few selected mortgage brokers. Customers who use information only brokers may therefore miss out on such mortgage products.
In all, when deciding whether to use information only mortgage brokers, people must decide whether they need independent advice, whether they wish to have access to the entire mortgage market, whether cost is a factor, and whether they want to risk not being made aware of exclusive deals.
If cost is not important and people believe they can choose the right mortgages without independent advice, they may wish to use the services of information only mortgage brokers. There are several thousand brokers in the UK to choose from.
Both Michael A. Stazko & Michael Sterios are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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