If you're new to the world of purchasing a home and haven't taken out a mortgage before, you may be confused about the differences between a mortgage broker and a loan officer at the bank. Although they can both provide you with a mortgage, there are differences between them that you'll want to learn so that you can get end up getting the best mortgage possible that matches your personal financial situation.
Using a Mortgage Broker For Your Mortgage
This is a professional that specializes in mortgages and acts as a third-party to bring together borrowers and lenders. A broker can access a variety of lenders and acts much like an agent during the process. He does your mortgage shopping for you and looks through the best rates that are being offered that match your own requirements for a home loan.
In some cases a mortgage broker can find a lender that will provide a mortgage when the banks have previously turned down an application. If you're self-employed or have any problem with your credit, you may have better luck dealing with a mortgage broker than you would have at a standard bank.
You won't have to pay for the services of a broker either. They are paid anywhere from 1% up to 1.5% of the value of the mortgage from the lender. You won't have to pay any extra for the mortgage since the broker deals directly with the bank's wholesale department. It's a win-win situation for everyone involved. In many cases a mortgage broker can find you a lower interest rate than what is being offered at the banks.
Using a Bank For Your Mortgage
When you're dealing with a bank you will only be presented with the types of loans that it is offering and any specials that go along with the loans at the time of your application. While you may end up getting a great deal on your home loan, you should still do comparison shopping at other banks.
Just because you are used to dealing with one specific bank doesn't mean that you'll be offered a super-special home loan based on the fact that you've been a loyal customer for years. Banks just don't get that personal when it comes to financing mortgages. It's always in your best interest to look around at the various deals available whenever you are purchasing a high-ticket item.
One thing that you should keep in mind, whether you're talking to a loans officer at your local bank or a mortgage broker, is that it's best to tell the lender that you're shopping around. This will let him know that he should be offering you the best rate possible the first time around without making you haggle for it. Tell him that you'll be exploring all of your options in your search for the best loan and he may end up giving you a better deal!
How to Prepare Your Finances to Apply For A Mortgage
Taking steps to prepare your finances for a mortgage can help you negotiate a better deal whether you're working with a broker or directly with a bank. The first step is to pay down your debts as much as possible as your lender will compare your monthly obligations with your income to see if you have room for a mortgage payment. Plus, paying down revolving lines such as credit cards will improve your debt utilization ratio—something that has the potential to boost your credit score considerably. You also want to hold off on any new credit applications in the year or so before applying for a mortgage. Credit checks can potentially lower your credit score and this will have an effect on your mortgage approval and interest rate. It is also helpful to take a look at your credit report and ensure that there are no errors that need correcting. Lastly, a lender's primary concern is whether you will repay what you owe so make sure that every single payment you're making is on time and in full to demonstrate your responsibility and ability to stay current with your obligations.