Getting a mortgage is part of buying a home. Most people assume that mortgages come from a bank and while this statement is not wrong, it’s not the only option. You can also use a mortgage broker.
So, what is a mortgage broker? How much do they cost? And, are they worth it? In this article, I’m going to dive into the pros and cons of a mortgage broker so you can better make a decision when it comes time for you to find a mortgage for your new home.
What is a mortgage broker?
A mortgage broker is a licensed professional that will help you find a mortgage to best suit your financial situation and needs. Whereas a bank will only have one option for you (theirs), a mortgage broker will shop around different lenders (some of which don’t deal directly with the public) to ensure they get you the best deal.
Generally speaking, mortgage brokers are seen as individuals who help you find a mortgage, but they can do much more. Mortgage brokers can also help you access equity, refinance your property, and purchase investment properties through their network.
No matter what you use a mortgage broker for, their end game is to ensure that they find you the best deal possible when it comes to your mortgage. You could end up saving thousands of dollars if not tens of thousands of dollars over the life of your mortgage by using a broker.
How much does a mortgage broker cost?
While the idea of having someone do the work of finding a good mortgage for you is appealing, there is always the concern of the associated fees. After all, this is a licensed professional and there is a lot of work involved.
That said, you may be surprised to know that, depending on your circumstances, you may not have to pay a mortgage broker at all. That’s right, your mortgage broker’s services may be free. Let me explain why.
A mortgage broker gets paid a finder’s fee by the lender when they finalize a deal. This is why it’s in their best interest to find you the best deal so that you sign with them. If you don’t sign a mortgage, then they don’t make any money. However, that’s a lot of time and work to put in and not get paid, so to best avoid this situation, brokers will ‘qualify’ their clients.
Qualifying clients is essentially determining their risk level. Qualified clients are what banks referred to as ‘prime clients’. These are generally low-risk people with full time jobs, a good credit history, proof that he/she pays the bills, and has little or manageable debt. Basically, the type of client that can be easily approved for a mortgage. These qualified or prime clients will not have to pay any mortgage broker fees and get the added benefit that they will also have access to the most competitive prices on the market.
So, what about those who are not considered to be qualified or prime clients? Well, they can still use a mortgage broker but the broker will likely add in fees to cover their time as the non-qualified clients tend to require more work to find mortgage options.
These fees tend to range from 0.5-2% and are only paid when the mortgage application is approved and closed. While the fee may seem like a deterrent, using a mortgage broker can still be in your best interest especially for those in financial circumstances in which a bank may turn you down.
Mortgage broker fees should be discussed ahead of time and included in the agreement.
How does using a mortgage broker work?
To find a mortgage broker you can go based on word of mouth recommendations from family or friend or, of course, you can find one online.
Once you find a mortgage broker he/she will arrange a call to discuss your mortgage and financing needs. They will ask questions such as how much you are willing to spend on a property and how much you have for a down payment. They will also ask questions about your financial situation in terms of any loans or debt you have already have.
Once the mortgage broker has an understanding of your needs and financial situation, he/she will shop around with lenders to find the best deal for you. When they do, you may be asked to provide some paperwork including a letter of employment, pay stubs, notices of assessment etc. to include when you submit your application to the lender.
Once the lender agrees to finance your loan, the broker will take care of the conditions and coordinate the closing by sending all the legal instructions to your lawyer. Throughout the process, the mortgage broker will be there to help answer any questions or concerns you have along the way.
A good mortgage broker will also educate you on how to maximize your home purchase. They’ll be able to explain things such as the Home Buyer’s Plan, CMHC, the amortization, closing costs and how a bigger down payment will affect your mortgage. In Addition, if you need a recommendation to other professionals related to real estate, your broker should be able to make a recommendation.
Using a virtual broker
Many mortgage brokers will meet their clients in person at least once to build the relationship or to get documents, but you can actually do everything virtually with a company such as Breezeful.
Since the qualifying process is done online, they can ask you more questions without taking more of your time. By having more information available, they can narrow down your specific needs for your circumstances and recommend the best mortgage.
The benefit of using a company such as Breezeful is that any documents you upload to their site for verification is secured. This is handy since many people may not feel comfortable sending copies of their T4, driver’s license, income statements and other personal information via email or making photocopies.
The other obvious advantage of using a virtual mortgage broker is that you never need to meet them in person. You get the same level of service without leaving your home.
Do I need a mortgage broker?
You do not need a mortgage broker. You can go directly to a bank or even a credit union to find a mortgage. However, as I mentioned above, mortgage brokers can shop around to find you the best rates and have access to lenders that won’t deal with the general public.
Of course, like with every other service, there are pros and cons to using a mortgage broker.
The pros of using a mortgage broker
- They are licensed professionals and experts
- They have access to lenders that you don’t
- They are unbiased
- They can get you the best rates
- Potentially a free service
The cons of using a mortgage broker
- More time consuming
- More paperwork
- Involving a new person
- Potentially an additional fee associated with their service
Using a mortgage broker has its pros and cons, but using one will usually benefit you. Sure, it will probably take a little bit longer and possibly require a little more paperwork on your end, but if it gets you a better rate on your mortgage, then it’s definitely worth it.