What Is A Mortgage Broker?
A mortgage broker is a company or individual that will arrange a mortgage between you (the borrower) and the lender (such as the bank). The broker works with you personally to find your exact mortgage needs.
The mortgage broker will offer you a range of options from different lenders which will match your needs and luckily here at Loan Corp we give you all the details you need to know about mortgage brokers.
Use our online mortgage calculator as a guide for your monthly repayments now
What Does A Mortgage Broker Do?
A mortgage broker has a lot of experience within the mortgage market and can give you the best deals and lenders available in the UK. They must act in your best interests and have to act with professionalism and care, meaning they must be able to explain any advice or recommendation they give you.
There are two main types of mortgage brokers:
- Whole-of-market brokers: These mortgage advisers have a broader view of the mortgage market and can look at a range of products.
- Tied or multi-tied brokers: These individuals only work with one or a small group of mortgage lenders.
Multi-tied brokers can only direct you to a few lenders, but they can still offer various perks, incentives, and broker-only deals from the lenders they have a close relationship.
Whole-of brokers are more impartial and independent because they are not tied to a group of lenders. With those brokers, you would have more options; however, they cannot cover each option.
Mortgage advisers base their shortlist of suggested deals on your given circumstances, which include:
- Size of the deposit
- Credit history and how much you can spend on repayments
- Whether you are buying a new home, an existing one, or an apartment
Mortgage deals will be shortlisted on these factors:
- Interest rate
- Fees charged upfront
- Term of the mortgage deal
- How much deposit is required
Why Should I Use A Mortgage Broker?
In some cases, first-time home buyers make up the bulk of the customer base. However, those using a mortgage broker are usually those who don’t trust the bank or building society and others who are too busy to go directly to the lender.
A mortgage broker is experienced in the whole process of finding and applying for a home loan. They can also answer many questions regarding the finance of your home purchase. The broker is helpful for first-time buyers, who are probably lost in this whole process.
Mortgage brokers can save you time by doing the legwork for you and finding out the best offers from every lender or bank, saving you from going for individual appointments.
The broker can also help you look at the financial situation and can make an overall recommendation of the best mortgage according to the situation. ‘
Unlike a lender who has their own criteria, mortgage brokers want to find you a deal that works depending on your situation:
- If you are self-employed
- If you are a first-home buyer
- If you want to refinance and want to re-fix their existing home loans
- If you want a mortgage for a new build
- If you want to make a property investment
The Advantages Of Using A Mortgage Broker
Professional mortgage brokers work in your favour. Here are some advantages to using them in your home-buying process.
Access to various mortgage products
Especially whole-of-market brokers have access to a wide range of loans from different lenders. Their experience is usually greater with the network, which improves your chance of getting a mortgage at the perfect interest rate.
Pinpoints the best deal
A broker has your best interests at heart rather than the lender’s interests (that’s how it should be!). They are your agent and a knowledgeable consultant who can solve any problems in the process. Since they have experience in a wide range of products, they can pinpoint the best loan for you in terms of repayment amounts and interest rates.
Flexibility and expert advice
The broker knows exactly how to help their client through any situation, smoothing any bumps and efficiently handling the process. For example, if you have bad credit, the broker will know which lenders to approach that will still offer the best deal. If you need a big mortgage, a broker’s expertise will get that even if their bank does not approve.
Saves time and money
You would only need to complete one form with a broker, compared to each form you would have to fill with each lender. The broker will provide a formal comparison of the loans they recommended, which gives you accurate information that shows price differences with points, current rates, and closing rates.
Your broker is offered loans on a wholesale basis from banks and other lenders, which allows them to give you the best rates in the market, making the total cost lower. A reputable broker will ensure to tell you how they get paid and details the total costs of the loan.
The Duties Of A Mortgage Broker
A mortgage broker has many duties and responsibilities, depending on what services they offer. Generally, their duties include:
- Getting documents, credit history, and employment proof for future homebuyers.
- Establishing professional relationships with various lenders to recommend them to clients.
- Compare various lender fees, such as closing costs, deposits, and interest rates, to give the borrower options.
- Apply for mortgages on behalf of the borrower.
- Advising the borrower on their different options and explaining all the legal and repayment details of the loan.
- They make sure that the mortgage does not have risks and is compliant with the law.
- Completing the closing paperwork with the title company, lender, insurance, and other agencies.
The Process That Mortgage Brokers Follow
The mortgage broker is the middleman between borrowers and lenders, so the process begins with you deciding to buy a new house or getting refinance. You would approach the mortgage broker, and then the broker goes to different lenders and finds out the rates and requirements of each, so you have options to choose from.
The mortgage broker collects your documents, such as proof of income, employment, details of your assets, credit reports, and other important documents that are needed to determine your ability to secure financing from the mortgage lender.
The broker will then make an estimation of the loan amount and type for you and the loan-to-value ratio. They will submit the application to the chosen mortgage lender for approval, acting as a liaison for you and the lender in the mortgage application process.
When you’re approved, the funds are given to you from the lender in their name, and the mortgage broker collects a fee from the lender and/or you for their services. The broker only gets paid once the transaction is approved.
The Usual Mortgage Broker Cost
The broker’s commission, which is paid from the lender, varies; however, it ranges from 0.5 per cent to 2.75 per cent of the mortgage. The law caps the mortgage broker fees at 3%, which should not be linked to the interest rate.
Most of the time, brokers do not charge you for anything. This is a fee-free mortgage broker. Their compensation comes from the lender and does not add to your closing costs.
In the past, consumers didn’t see how much the mortgage broker gets paid, but recently, you are more aware of their fees, and they are entitled to tell you their compensation.
In some scenarios, mortgage brokers charge you a fee for their services, but it is between 1% and 2% of the mortgage. Before you start working with a mortgage broker, ask about their fee structure and what you may be paying them.
Fee-Free Mortgage Broker Or Paid Broker: Which Is Best?
It depends on the financial situation, the fee you have been quoted, and if the broker can eliminate possible fees from the lender.
Fee-free brokers are good for those who don’t want to spend the extra pound; however, some are unethical and take advantage of you. In the worst-case situation, the broker may point you to take out an unsuitable loan with a lender so that they will earn more money through that particular lender.
These brokers are usually good for mortgage applicants who have fewer complex needs, such as straight income, can put down an increased deposit, and have perfect credit. Complex needs include low deposits, bad credit, and other factors that need a specialist broker.
Even if you want to purchase a cheap building, if you ask for too much (e.g., you have to borrow 90% of the value), your mortgage application will be high-risk. Paying the fees to work with a broker will benefit you in many ways, such as their guidance and access to exclusive deals.
Working with a proficient and trustworthy mortgage broker will help you find that dream house and mortgage. You have to make sure that they are qualified by the FCA and are authorised to give you the best advice.
Do the lenders look at all bank accounts?
Yes. They will look at depository accounts on bank statements, which include saving accounts, checking accounts, and any open credit lines.
What prevents you from getting a mortgage?
Most of the time, mortgages are declined because of insufficient income, debt-to-income ratio, or poor credit. It would be best if you considered reviewing your credit report with the mortgage broker will help you see where the issues were. Using a broker can increase your chances of getting approved.
Do mortgage brokers offer cashback?
Most mortgage brokers can arrange a cashback mortgage for you; however, not all lenders will offer this. By opting for a cashback mortgage, you will be paid a lump sum on completion, which helps you cover expenses such as removals, home repairs, legal fees, and even buying new furniture.
What is the Financial Ombudsman Service?
This is a service where you can complain about financial services and products. If you feel like your broker has not been providing the best service, you can contact this service for further information.
If you use a mortgage broker, you are sure to find the best deal on the market with Loan Corp. Finding the right broker will be the best thing you do in the mortgage process, as they will make things much easier for you and get you exactly what you want so contact us now to get started.