If home loans were as easy to find and pick out like a new car on a dealers lot it really wouldn't matter if borrowers went with a broker or a lender. But, the ease of finding a home loan today is difficult and the type of loan that a borrower can find is very important and it should matter to them.
One of the biggest differences between a broker and a lender is that brokers can offer a variety of loan programs from many different lenders. What this means to a borrower with special needs is that they may have a better chance at securing a loan than if they had gone with a single lender.
In many cases lenders won't always offer loans to borrowers that have poor credit, can't document their income or assets, can't make the down payment, they have a high debt or they need to close quickly. There are many other examples, but these are just a few.
However, there are lenders out there that can handle each of the examples listed above and brokers can find them. Thus borrowers with special needs like the ones listed above can save a lot of time and frustration by going through a broker to find a home loan.
Borrowers who really don't have special needs are able to go either way when it comes to finding a loan between a lender and a broker. They may decide to shop the market on their own or they might want to retain a broker to do the shopping for them. However, should they decide to find a loan on their own, they may be exposed to troublesome loan traps that may snag the unsuspecting borrower in the home loan market. Here are just a few to watch out for:
- Loans whose prices reset daily and thus the borrower cannot compare loan A's price one day to loan B's price the next day.
- Prices that depend on the type of loan such as; loan features, the kind of property, and so on. Unless the borrower specifies all of them there's a good chance that loan A's price will be different compared to loan B and therefore you are not comparing apples to apples.
- Prices usually include at least three items which are interest rate, fees based on the percent of the loan and fees that are shown in dollars. If the borrower does not take all of these into consideration, then they may not get the lowest priced loan.
- Lenders and brokers don't always lock in their prices, and sometimes they give very low quotes to get your business but ultimately many times those quotes are not used. If the borrower is not sure how to avoid phony price quotes, there is a good chance they will not get the best loan available to them.
One of the nice things about brokers is they are experts at shopping the home loan market and they are usually better positioned than consumers in finding the best loan available from competing lenders.
On the down side, in dealing with a broker a borrower must realize that many brokers see themselves as independent contractors and their interests are not always the same as the borrowers. It should be understood by the borrower that the broker's income comes from marking up the wholesale price that's quoted by a lender. In turn, the higher the price the broker can get out of the borrower, the larger the markup will be.
To minimize these pitfalls borrowers should hire brokers at a fixed fee which should be negotiated before any loans are searched for and found. This fee must include any compensation from the lender, because the fee you are paying to the broker should not be based on the interest rate that's attached to the loan. Quality mortgage brokers should always operate this way, but other brokers will work this way too if the borrower requests it. As in any deal, make sure everything is in writing.