The Canadian housing market continues to be competitive and active for home buyers. The average home price is $713.542, up 17% from December.
If you’re in the market to buy a house, you need to be organized and ready when you make an offer. Houses aren’t staying available long, so if you bid, you need to be ready to buy.
One of the most important elements of home buying is getting a mortgage.
So, should you go to your local bank to get the mortgage? Are there advantages to using a mortgage broker?
Why use a mortgage broker instead of a bank? As a home buyer in this market, you need all the advantages you can garner. Read on to learn more about using a mortgage broker instead of a bank.
What Is a Mortgage Broker?
A mortgage broker is a financial professional who finds mortgages for home buyers. Instead of working with just one lender, like a bank, they work with a whole variety of lenders.
It’s their fiduciary responsibility to find the best possible mortgage for you.
For many looking to buy a house, they will meet with the mortgage broker before they ever start looking.
The mortgage broker can look at their financial picture and help them narrow down what they can afford and what mortgage package might be most realistic for them.
It is the responsibility of the mortgage broker to represent you to find the best possible mortgage package from the host of lenders they represent.
Advantages of Working With a Mortgage Broker
There are several advantages of working with a mortgage broker. One of the biggest is that the mortgage broker will work with multiple lenders. This allows them to find the best possible mortgage for you.
Mortgage brokers have more flexibility than bank lenders. They can meet with you when you need them to be available. They also have many options for lending making it easier to get a loan for people who might have bad credit.
The mortgage broker is responsible for completing all of your paperwork to get the loan processed on your behalf. You also don’t pay them out of pocket. The broker is paid by the lender for securing the loan on their behalf.
Cons of Working With a Mortgage Broker
There are a few things to consider when working with a broker. Because they act as the middle man, sometimes they don’t have control of how fast the mortgage moves along.
Some have suggested that a mortgage broker might not always choose an option that doesn’t benefit them financially. You want to ask about their fiduciary duty towards you.
Not all lenders opt to work with a broker, although they are likely to have more options than a bank for mortgage loans.
Often you’ll have a standing relationship with your banker. This relationship can make them more willing to work on your behalf. You would need to develop a rapport with the mortgage broker you hope to use and make sure you share common goals.
What Is a Direct Lender?
A bank is often referred to as a direct lender. When you go to the bank for a loan, they are the direct lender of that loan.
Many people will seek a mortgage from the bank or the direct lender they already do their daily banking with.
The process of applying for a mortgage is the same whether you’re working with a mortgage broker or a direct lender. You need the same kind of documentation.
Advantages to Working With a Direct Lender
One advantage of working with a direct lender is the relationship that’s already in place. You might already do some banking with the institution.
Getting your mortgage from them allows you to continue that relationship. It might also mean they offer some special incentives to entice you to get a mortgage from them.
Some direct lenders will offer special advantages for savings on checking accounts, credit cards, or other products through the bank.
Cons of Working With a Direct Lender
If you want to opt for getting a mortgage with your direct lender, there are some things you want to consider.
First, there may be fewer options for mortgage packages. Because the direct lender can only offer you their own products, your options are limited to their types of mortgage packages.
Another consideration is if you have a less than perfect financial picture. Banks must follow the regulations and be compliant with federal standards. This can mean their lending standards are much stricter than some mortgage broker packages.
A bank officer may not specialize in mortgages specifically the way a mortgage broker does. The broker may have more extensive knowledge and guidance to offer.
The bank may also want you to sign up for other services through them once they offer you a mortgage.
Difference Between a Mortgage Broker and a Bank
There are a variety of differences between a mortgage broker and a bank lender.
The biggest difference is who actually gives the mortgage. The mortgage broker acts as a type of middle man. It allows them to have a menu of lenders available to them.
The mortgage they help you secure won’t come from them, instead, it will come from a lender they work with.
The bank or direct lender, on the other hand, represents their institution. When they help you get a mortgage from them, it comes from their employer.
This also means potentially that they have fewer options available to them as they look to find the perfect mortgage for you.
Choosing a Mortgage Broker or Bank for a Home Loan
Whether you work with a mortgage broker or a bank is a personal choice. There are advantages to both and disadvantages to both.
It often will come down to who can find you a mortgage that meets your needs. It’s getting a little more challenging to secure a mortgage in this competitive housing market.
You may opt to work with the source who can find you the best mortgage. It becomes a choice to which feels right for you.
Why Use a Mortgage Broker Instead of a Bank?
Having said that, for many with a tricky financial picture or if you don’t have a relationship with a direct lender, often a mortgage broker is a better option.
When a bank can only offer you the loans available at their institution, it can be more limiting. On the other hand, because a broker has many options of lenders, they can often help secure you a loan that a bank might be able to get you.
Any type of special circumstance connected to your borrowing will likely be better accommodated by a mortgage broker.
Also, remember, this is their area of expertise. They can help you to best understand your mortgage options.
How to Find a Mortgage Broker
Finding a mortgage broker can be different because you only use them when you purchase a home and that isn’t something most people do frequently.
Start by asking for references from friends and family. Who have they used to secure their mortgage? What was the experience like for them?
You can do an online search too.
Some suggest it’s smart to use a mortgage broker who has some knowledge about the community you hope to buy a house in. This can mean they understand the market of that community better and are better equipped to guide you along the mortgage process.
If you’re already working with a realtor, you can also ask that person for advice on how to find a broker. They work in the industry and likely have connections through previous buyers and sellers to mortgage brokers who have done well for other customers.
How Does a Mortgage Broker Get Paid
A mortgage broker gets paid when they help you close on a mortgage. They don’t make any money if you can’t get a mortgage.
Their pay is commission based on the value of the mortgage you get.
In most cases, the mortgage broker is paid by the lender a commission from helping to get you to borrow from them.
Sometimes, you will be responsible for paying the commission and can include it in the financing of the mortgage.
An important question to ask your mortgage broker is who pays them and what is that pay based on.
Using a Mortgage Broker for Your Loan Needs
Why use a mortgage broker instead of a bank? There are a variety of advantages to using a mortgage broker over a direct lender.
Mostly they have more options to help you get the best possible mortgage package.
If you’re in the market to buy a home, we can help you find the best mortgage to fit your needs. Contact us today to get started on achieving your goal of homeownership.