For prospective home buyers, the consensus is that the worst part of the whole mess is dealing with banks to get a mortgage. All the shopping around, legwork, paperwork, etc. can be a real pain. These issues are why there are mortgage brokers.
It is a long and tedious process, and since many buyers do not understand the whole business of mortgages, they leave the dirty work to a broker. Agents serve as the middleman between the purchaser and the lender.
What Brokers Do
An agent will meet with you, gather the pertinent financial information, and then go shopping. Not at a store, mind you, but multiple lenders. The broker will visit each bank from an approved list and present your financial information, looking to get an offer.
Repeat this process until all proposals are gathered. The broker analyzes each offer completely, noting all the terms as well as risks and benefits of going with each offer. The agent will explain each one to you, then make recommendations based on the offers available and the financial situation of the buyer.
The broker’s job does not end at finding a mortgage for you. He or she will stay with you throughout the process; they will ensure proper and prompt handling of all the paperwork. Essentially, a broker is the grease in squeaky wheels.
The broker maintains communication with both sides (buyer and lender) until closing is complete. After that, there is no longer a need for a broker.
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Who Pays the Broker?
When you go through a broker, you might be surprised that you do not have to pay. Does this mean that brokers work for free? Of course not! Someone has to pay them, but it isn’t you.
Brokers get paid by the lender that you go with. It is a commission of sorts. Many brokers get what are called trailer fees today. This is where the broker does not take all the commission up front.
Instead, a smaller amount is taken at signing, and a percentage is given to the broker every year as long as the mortgage is active.
Let’s recap what we’ve learned so far.
Since brokers get paid by lenders, there is a possibility of a conflict of interest. Some brokers may be tempted to go with individual banks, not taking into account the best interests of the buyer.
Thankfully, this is a minority, as most brokers are mainly concerned with the buyer’s needs and wants, getting a mortgage that works best for the buyer. After all, satisfied customers bring in more money than those who got shafted for a bigger commission.
Ok, final recap of what we have learned:
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