November 08, 2019 | home-buying
Lenders, Lenders, Everywhere: Understanding Mortgage Brokers in Texas
If you’re in the process of buying a house, you are likely searching for the best financing options available. You might have come across the words “mortgage broker” more than a few times, and if it leaves you scratching your head in confusion, you’ve come to the right place! We’re here to answer questions related to mortgage brokerage including:
- What is a mortgage broker?
- What does a mortgage broker do in the lending process?
- What is the difference between a financial institution and a mortgage broker?
- What are the pros and cons of a mortgage broker?
What Is a Mortgage Broker?
A mortgage broker is an intermediary between a borrower and potential lenders. Their job is to search around and find the best interest rates and lenders for your financial situation, whether it be a mortgage through a wholesale lender, credit union, bank, or another option. Should you choose to work with a mortgage broker, you won’t be dealing with a bank or lender directly; all communication will take place through the broker.
Brokers are not employees of banks. They operate independently, which means they are not beholden to any specific financial institution. Brokers make their money from a fee based on the total of the mortgage. In most cases, the borrower will pay this fee, but in some instances, the lender covers this cost.
Before the housing crisis of 2008, mortgage brokers had a somewhat poor reputation due to a combination of loose regulations and the fact that broker compensation is based on the type and size of the loan. Today, more industry regulation exists, and mortgage brokers in Texas and most other states must be licensed.
What Does a Mortgage Broker Do in the Lending Process?
A mortgage broker wears several different hats throughout the lending process. Should you choose to work with one, they’ll help you with the following.
- Determining Qualifications. Mortgage brokers will collect all of the necessary documentation like bank account statements and pay stubs, which are used to assess your ability to pay off a loan. They will be able to identify if anything in your financial history or records is likely to cause issues getting a mortgage and find solutions to the problems.
- Finding the Best Interest Rates. Mortgage brokers will work with many lenders— banks, credit unions, wholesale lenders, etc.— to find the best deals for the borrower. Since they regularly deal with a variety of lenders, they track current rates and fees for each and can help find you options that you might not find on your own.
- Applying for a Loan. Once you start applying for a loan, the broker will help guide you in the application process. They’ll submit all of the necessary documentation to the lender.
Throughout all of these processes, a mortgage broker will be the go-between you and lenders.
What is the difference between a financial institution and a mortgage broker?
There are some similarities between dealing with a mortgage broker and a financial institution, but there are also some key differences to keep in mind.
For one, a financial institution such as a credit union or bank is the entity that funds your loan. No go-between is working on your behalf; you apply for the loan directly with the bank. If you qualify and are approved, they are the ones that will hand you the check. A mortgage broker, on the other hand, does NOT lend money.
Working with a financial institution like a bank or a credit union allows you to build off of existing relationships, meaning that if you take out a loan where you already bank, you may get some discounts. Having direct contact and a relationship with the lender also means that you might be able to get approved for loans that you wouldn’t typically be accepted with a direct lender. You may also come across lower interest rates this way.
What Are the Pros and Cons of a Mortgage Broker?
Like any financing option, working with a mortgage broker comes with its own set of advantages and disadvantages.
Pros of a Mortgage Broker
For some, the benefits of a mortgage broker outweigh any disadvantages. Some of the advantages of using a broker include:
- Time and Effort Savers. Tracking down lenders and finding out loan terms and interest rates can be time-consuming. If you’re busy trying to sell your current home on top of your regular life, a mortgage broker can save you some hassle by finding the deals for you. And since they are aware of your particular financial situation, they’ll already have an idea of which loans will be best for you.
- Better Access to Lenders. Some lenders only work with mortgage brokers. This means that you might have more options available to you.
- Pay Fewer Fees (Sometimes). Loans often come with all sorts of fees— application fees, origination fees, appraisal fees, and more. Sometimes mortgages brokers can work with the lender to reduce or waive the fees. Keep in mind that this isn’t always the case.
Cons of a Mortgage Broker
- Lack of Access to Other Financial Services. A mortgage broker is not like a bank. If you get a mortgage through your credit union or bank, you can keep all of your financial services together under one provider.
- Brokers May Not Have Your Best Interests in Mind. A broker isn’t necessarily working for you; while they do help you find a mortgage, they also are trying to make money from the fees, which are typically proportionate to the loan amount. This isn’t the case with all mortgage brokers, but it never hurts to do a little research on both prospective brokers and mortgages.
- Some Financial Institutions Don’t Work with Brokers. While some only work with brokers, others won’t work with them at all. These institutions may be able to offer better loan terms than the options presented by your broker.
Like any financial choice, it’s always best to do your research before choosing a broker or lender. Even if you’re dealing with a local mortgage broker in Austin, Texas, you’ll want to take the time to find a professional that you can trust.