Since your mortgage is probably going to be the biggest expense of your life, you want to be sure that you’re getting the best deal. One way to do this is to compare mortgage rates using a mortgage broker. It’s a great choice if you don’t want a lot of hassle, but there are some disadvantages as well.
We've compiled a list of pros and cons to help you decide whether or not using a mortgage broker is the best decision for you.
Pro: Getting a Great Rate
Rather than working for a single lender, mortgage brokers have connections to multiple lenders. This allows them to easily look at the different rates to find the best deal for you. Why is this so important? Each lender makes their own decisions about which credit score qualifies you for the best rate. While you might qualify for a second-tier rate through one lender, you could be in the first-tier rate for another.
Con: Slowing Down the Building Process
Mortgages for new construction homes work a little differently than mortgages for traditional resale homes. When you take out a mortgage for a resale home, you borrow a lump sum at once. When you’re building a home, the mortgage comes in stages. Lenders who aren’t familiar with this process could be slow about making the next payment, and this can slow down the building process. When you work with a lender that’s familiar with the process, everything runs smoothly.
Mortgage brokers may have connections to banks that frequently handle new construction loans, but you shouldn’t assume that this is the case. If you’re worried about the timeline of your new home build, you’ll want to ask about this.
Pro: Working with a Single Point of Contact
You can compare mortgage rates on your own, but this means applying for mortgages through many different lenders. These days, you can usually apply online, but you’ll probably be getting phone calls from each place you apply. You have to stay organized to make sure you’re remembering whom you’re talking to.
When you work with a mortgage broker, though, he or she acts as your only point of contact. They’ll work with the various lenders, then relay information to you.
Con: False Sense of Security
Mortgage brokers do work with multiple lenders, but this doesn’t necessarily mean that they work with every possible lender out there. You might work with the broker assuming that they’ll compare the offers from all banks, but this isn’t usually the case. They’re only comparing the offers from the banks they work with. It’s possible to find a better rate on your own, even though it’s fairly rare.
Additionally, a mortgage broker may be connecting you with a lesser-known lender. That’s not necessarily a bad thing, but they may not have the same experience as a larger bank.
Pro: Personalized Help and Unbiased Advice
The mortgage broker will look at your unique situation and recommend products that work best for you. He or she likely has access to a greater range of products, so you can find a mortgage that truly meets your needs.
A traditional lender may still offer you advice and different options, but those options will be limited to the ones that the lender has available. While those options do work well for the average buyer, they may not be the ones that are best for you.
Con: More Paperwork
Each lender has its own requirements for qualifying you for a mortgage. When you work with a mortgage broker, you’ll need to provide all of the things that various lenders might want, such as proof of income, bank account statements, and tax returns. If you were to work with your usual bank instead, they’ll already have access to things like your bank account statement and proof that you have regular income coming in, so you don’t have quite so much paperwork.
Some people find gathering all of the documentation tedious, and if you want to reduce the load, you may want to stick with your preferred lender, especially if they’re advertising good rates. If you don’t mind a bit of extra work, the mortgage broker might get you a better deal.
Mortgage brokers can make the process of applying for a mortgage and getting a great rate easier, but they’re not for everyone. They may be a smart choice for those who have unique financial situations, though, the average person can also do well applying to traditional lenders on their own. It’s all about what makes the most sense for you and your family.