What does a mortgage broker do and why use one instead of going directly to a bank?
Gaining access to an experienced mortgage broker is an invaluable resource when purchasing a property. The broker will assess your financial situation and has access to a much wider range of loans than any single institution can offer you. Fundamentally, a good broker will be able to advise you on the pros and cons of various loans. They will advise the best way in which to structure your loan/s and the risks associated with proceeding at any stage throughout your property purchase.
There are a number of good reasons to use a mortgage broker instead of a bank:
- Firstly, brokers have access to loans from a variety of lenders. These lenders may include the large banks, plus other non-traditional lenders and mortgage managers.
- A broker will find the best finance deal that meets your needs. Many people may think of a broker as solely an aid to shop around for the best rate, however the initial due diligence that a broker undertakes not only gives you access to a large range of loan options without you having to do any of the legwork, it will also ensure you are matched with the most appropriate lender for your individual circumstances – based upon likelihood of gaining approval as well as on the most competitive terms.
- Brokers also have good relationships with lenders, and can often negotiate a very competitive rate. These days more people are seeing the value of engaging with a good broker which is reflected in the fact that almost all lenders receive in excess of 50% of their business through the broker channel – so it’s in their best interest to work closely with brokers.
- A broker has access to loan rates and fees and charges that enables an easy comparison of loan costs. Where possible, a broker will also do their best to obtain discretionary rate discounts over and above what the lender may advertise.
- The broker’s experience in the mortgage industry will help you make informed decisions and allow you to feel confident throughout the process.
- For residential home and investment loans, the broker does not charge the client. The broker receives a commission from the lender at settlement on the loans they write. They also receive a trailing commission for the life of the loan in order to manage all of your lending & banking needs ongoing. Therefore it is in the broker’s best interest to ensure they offer great service and advice to their client.
- A broker is generally accessible after hours and often more willing to go the extra mile for you.
The broker will walk you through the loan application and advise what documents and paperwork you will need to submit with your application. The documents you need will depend on the type of borrower you are, and the type of loan you require. The broker will also advise how long the approval process is and when you can reasonably expect your pre-approval to be ready.
As with all industries, brokers can be of very mixed ability so always look beyond the rate on offer when deciding who to work with. Not all brokers have the same level of qualification or experience. Make sure you engage with a fully accredited & licensed broker who has extensive experience, preferably with a banking background. We always suggest talking to valued contacts such as family, friend and trusted advisors such as accountants and buyers agents for a recommendation. When we recommend a broker, it’s on the basis that they provide insightful advice and exceptional service, act in a professional and responsive manner and provide options that are in their client’s best interests. The timeliness and quality of their advice can make or break a deal.The timeliness and quality of a mortgage broker’s advice can make or break a deal… Click To Tweet
A good broker will do the following:
- Ask questions regarding your financial position and gain an understanding of your situation.
- Determine what type of lenders & home loans would best suit your needs and clearly explain why the lender is most suitable for you.
- Calculate how much you may be able to borrow and what your repayments will be.
- Explain the application fees and other charges associated with a loan.
- Explain and calculate the stamp duty associated with your property purchase.
- Give you a realistic budget so you can look for the right type of property.
- Explain the difference between a pre-approval and unconditional approval.
- Advise how quickly you can expect your ‘unconditional approval’ and the steps required.
- Advise if, and at what stage a bank valuation is required, and what effect this may have on your borrowing capacity.
- Explain the risks associated with buying at auction without first getting unconditional approval.
- Provide you with insight & access to specialist policies for certain professional industries.
- Explain how Lender’s Mortgage Insurance (LMI) works and whether you can or should avoid it.
- Let you know whether you qualify for any other government assistance or grants and if so, how you can access any assistance or concessions.
The real issue with a loan pre-approval is that they are not unconditional. An experienced broker will be able to help you to understand the risks associated with bidding at auction or making an offer. They will be able to guide you through the often confounding “chicken and egg” situation that occurs when your bank won’t give unconditional approval without a valuation, yet that same bank refuses to book the valuation until you have already exchanged contracts. Confused? This is why you need a really good broker.
Published 27th September 2017
Author: Sue Neilsen
DISCLAIMER: Good Deeds buyers tips are intended to be of a general nature. Please contact us for advice that is specific to your individual circumstances. You may also need to get advice from other professionals such as an accountant, mortgage broker, financial planner or solicitor.