First-time home buyers often wonder if reaching out to a bank or a mortgage broker is the best option for them.
For a first-time home buyer, navigating the landscape of mortgage products can be a daunting task to say the least. You’ve got conventional vs. government insured, FHA, VA, USDA, Fixed, Adjustable, jumbo and the list goes on. For the first-time home buyer, this can all sound like “Greek” not to mention the stress associated with making the most important purchase decision of your life. While there are two basic options of acquiring a mortgage (direct lender/bank or mortgage broker), many questions remain, especially for millennials, who make up the majority of first time home buyers.
Direct Lender vs. Mortgage Broker?
Too often, first-time buyers make mistakes that end up costing more in the long run. For example, a certain mortgage product might be geared towards long term occupancy, but if misunderstood, a buyer could pay significantly more if they ended up leaving the home sooner…and vice versa.
Many first-time home buyers end up with a direct lender, usually through referral by their real estate agent. Since direct lenders can only offer the products they sell, they tend to match the borrower to their product instead of the other way around, which often results in wasted valuable time or not getting the best mortgage based on your unique needs.
Key Factors to Consider
What are the cost differences between a direct lender and a broker? You want to look at the total mortgage costs. Note, that total costs are not the same as fees. While you need to compare the fees charged by direct lenders or brokers, it’s wise to compare the total mortgage costs to make the best choice. For instance, what are the costs of having too few mortgage choices? If the lowest cost mortgage for you never makes it to your comparison list, you probably will pay more than you need to. Another cost to consider is processing time. If your mortgage provider takes months to process your application, you will pay unnecessary rent as well as other expenses. When it’s all said and done, most first-time buyers match well with a mortgage broker.
Ok, you are convinced that a mortgage broker is the way to go, but aren’t all brokers the same?
Here are the three essentials to look for in your mortgage broker:
- Knowledge and Expertise: First and foremost, make sure your broker is truly an expert on all things mortgage finance and has knowledge on related areas of the home buying process—namely the big three; credit scoring, down payment, and income requirements. Consider the broad pedigree of the broker—their licensed credentials, industry experience, and perhaps most importantly, their willingness to listen and meet the needs of their clients. A true mortgage expert stands apart by explaining the “why,” not just the “what.” To evaluate customer satisfaction, check business review providers such as Yelp, the Better Business Bureau and others.
- Automated Platform: Traditional mortgage processing is extremely manual and paper-intensive. With the rise of financial technologies “fintech,” brokers can now deliver their mortgage and financial expertise via online platforms. Automation accelerates the qualification and application processes enabling brokers who operate on a well-designed platform to pass on the savings to their clients. Mortgage Brokers with automated platforms fit best with millennial buyers.
- Flexible Communication Preferences: Many brokers tend to rely heavily on lengthy telephone calls and emails to clients which often results in errors and inefficiencies. These limited communication channels do not align with the preferences of many home buyers. Moreover, millennials tend to prefer brief, online interactions that they can access on smartphone. The fact is, people have unique communication preferences, whether it be; in person, text, email, or phone, so brokers who offer a broad set of communication channels are better positioned to meet their clients’ preferences.
There you have it. A mortgage expert can be your trusted concierge that helps match your needs to the best mortgage that's available on the market. While following these tips will not teach you to understand Greek, it can help guide you to the path of achieving your dream of home ownership and financial security.
To take the first step in getting prequalified for a mortgage and save on your mortgage, reach out to Stem Lending's mortgage team: