Why Use a Mortgage Broker Instead of a Bank?

Did you know that despite the pandemic, people are buying homes at a record speed? In Canada, more than half of adults ages 25 to 35 own their homes and a quarter of those individuals bought their property during the pandemic.

One tool used by these new homeowners is mortgage brokers.

So, if you or someone you know is looking to join this wave of new homeowners, it is essential to understand how a mortgage broker can help you get the best deal and stand out from the other buyers. To learn more about what a mortgage broker is, keep reading.

What is a mortgage broker?

A mortgage broker works as your personal agent communicating to different lenders on your behalf. They have connections with many financial institutions and are typically able to give you the best deal possible.

What are the benefits of hiring a mortgage broker?

There are many reasons why having a mortgage broker is better than going through a bank directly. Let’s look at the six main reasons right now.

1. More Choices

When you go through a traditional lender like a bank, they can only offer you the products that they are qualified to offer. Thus, you are limited to their options.

Plus, even if there is a better option for you, like a zero-down mortgage, they will not mention it if the bank is not qualified to offer that product. Thus, you might be missing out on great opportunities.

Instead, a mortgage broker can look at all the lenders they know and find the one who offers a product that is right for you. They have access to different types of mortgages and are therefore more flexible in their offerings.

2. Less Paperwork

Another advantage of a mortgage broker is that they will have you fill out a single mortgage application. Your mortgage agent will then use this single application to apply to many lenders for you. This will save you considerable amount of time.

If you choose to compare multiple banks’ offerings, you would have to fill out an application per institution.

3. Lower Credit Score

If you are buying a property and your credit isn’t so great, a mortgage broker can be beneficial. Mortgage brokers have more options, they know which lenders are willing to work with applicants with less-than-ideal credit scores.

Furthermore, most banks require a minimum of a 630 credit score just to start the application process.

Beyond credit scores, mortgage brokers are better equipped to handle anything out of the ordinary with mortgages compared to traditional lenders. For example, if you have debt in other financial areas which might affect your debt ratio, a mortgage broker could help you with that.  So, if you are worried about any aspect of your mortgage application, mortgage brokers are there to help.

4. Fewer Fees

Another advantage of a mortgage broker is that they can typically consolidate your fees. From appraisals to closing fees, a mortgage broker can negotiate any and all fees on your behalf.

If you go through a bank, they have fewer reasons to work with you on fees. Having a mortgage broker gives you leverage to negotiate better deals.

5. Easier Contact

Since mortgage brokers usually works for smaller companies, they have more time and attention to give you.

A mortgage broker can use this time and attention to make a personalized plan for you. For example, while a 30-year mortgage might be right for one individual, another could need a 15-year mortgage. Having a mortgage broker will help you figure out what your needs are.

In contrast, a bank who only sees your application won’t have the time or information that a mortgage broker has to understand your needs and find the best solution for you.

6. Income

Another advantage is that most mortgage brokers don’t get paid unless your mortgage goes through.

Most banks pay their mortgage lenders a salary, plus they make commissions off each loan. Thus, a mortgage broker has more motivation to get your loan done.

How do mortgage brokers get paid?

A mortgage broker makes about 1%-2% off the total mortgage after completing it. The lender typically pays them.

However, if the mortgage has a lower rate, the borrower will pay the broker’s fee instead. It is usually best to check with your broker regarding their payment expectations.

Another positive aspect about broker’s payments is that they have to disclose how much they make on the purchase of your home. Banks, on the other hand, are not required to disclose that information.

Cons of using a mortgage broker

There are always some cons to any situation. Here are two possible downsides to using a broker.

1. Money

The first possible downside to using a mortgage broker over a bank is that it might cost you a little more money initially. That being said, the amount that a broker will save you in various fees and interest over time will balance out their cost.

2. Best Deal

The second downside is that sometimes, brokers might not be able to get you a deal better than what the banks would offer you directly. It is true that a bank can sometimes offer a better deal to an individual over a broker, but those are rare cases.

Additionally, it can be challenging to figure out which banks would rather deal with individuals directly.

So, unless you already have a close relationship with an institution, a broker is still likely the best option.

Reach Out Today

If you are a buyer looking to gain an edge in this competitive market, reach out to a mortgage broker today. They can help you get lower fees, better options, and make the process easier for you.

Or, if you are just starting the process and want to find out what a home might cost you, check out this mortgage calculator.

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