When buying a home, it’s easy to get caught up in the excitement of house hunting. Walking through beautifully decked-out properties can be one of the most exhilarating experiences ever, and your dreams come to life as you imagine how you would decorate and arrange each room. Throughout this process, however, you can’t lose sight of the practical sides of the transaction.
One of the most significant challenges is how you’re going to finance your purchase. This opens up a host of questions before you can turn your dreams into reality. Should you go the traditional route of financing your home through the bank? Or is it better to work with a mortgage broker who can introduce you to lenders you wouldn’t have access to otherwise? When you’re talking about a purchase involving such a large sum, even a tiny difference in the rate can save or cost thousands of dollars over the term of your mortgage. In this post, we’ll go over both options and show you the advantages and disadvantages of each.
A Bank Vs a Broker: What’s the Difference?
With a bank, you have only one lender to deal with. A mortgage broker means working with potentially dozens of possibilities. When you walk into a bank, things are simple, which can be both an advantage and a disadvantage.
Working with a bank where you have an existing relationship and established trust can give you a boost of confidence during this exciting yet stressful purchase. If you have a long history and a good credit rating, your bank might provide you with a lower rate than you’d otherwise get.
The disadvantage is that as your only lender, you are limited to their rates and their terms. You could shop around with different banks, but this means starting the process over again every time.
The bank might also be more discriminating about approving your loan or how much funding they will give you access to. If you find a house you love that is slightly over your budget, you’ll either have to pass it by or come up with the difference yourself.
Want to know even more about real estate financing? The posts below have you covered:
- Is it Better to Pay Off Your Mortgage or Invest Your Money Elsewhere?
- Straight Talk About Second Mortgages and Refinancing
- Can You Buy a House With a Poor Credit Score?
Why Consider a Mortgage Broker?
With a mortgage broker, you have instant access to multiple lenders all at once. It can save time and help you find a better rate at terms that work for you. This, in turn, can allow you to be more flexible when budgeting for your new home. Other advantages include:
- Access to funding in challenging situations. A bank may turn you down flat if your credit score is slightly less than stellar. However, a mortgage broker can often provide access to secondary or private lenders who will work with you, even with bruised credit. Interest rates may be higher, but getting approved is easier.
- A mortgage broker is paid by the lender, but is legally obligated to represent your best interests.
With the increased options and potential for lower rates and better terms, it’s hard to find the downsides of working with a mortgage broker. However, not every broker represents the same lenders, so you may need to shop around with different professionals until you find terms you are happy with. The challenge is finding someone you trust, which can take time. If you need to make a decision quickly, time might be the one luxury you do not have.
A Pre-Approval Solves Everything (Almost)
Buying a house in today’s market is particularly challenging because of the rising prices and unprecedented competition. Even in a “slow” market, supply is low, and you might find yourself up against other buyers who have their eyes on the same house you do. When you find the right listing, you often have to work quickly to craft an offer that stands out.
Any delays mean another buyer can scoop up the home before you even have a chance. The problem is that dealing with either the bank or a mortgage broker takes time that you may not have. However, there is a simple solution.
You can jump ahead of the competition by getting a pre-approval for your mortgage ahead of time. Your pre-approval doesn’t just allow you to act quickly. You can create a compelling offer by safely dropping the condition of financing. Best of all, you automatically lock in the lowest rate between when you apply and when you actually purchase a house. If rates rise in the meantime, you are protected.
Are you preparing to buy a home for the first time or just want a review of the process? Here are some resources you will find valuable:
- Real Estate 101 for First-Time Buyers
- The Ultimate Guide for First-Time Buyers in Guelph
- Buying an Older Home? Here Are The Red Flags To Watch Out For
The Trust Factor
The decision to work with a mortgage broker or stick with your bank is ultimately up to you. What matters most is that you find a reputable professional that you can trust to represent your best interests. But how can you decide when there are so many options, and everyone claims to be the best? You don’t have to rely on word of mouth or Google reviews when searching for a lender. Often, your real estate agent can refer you to a professional that they have personally vetted and can vouch for.
However you decide to proceed, a little background research can help you narrow it down. Before signing any agreements, here are some questions you might want to ask your lender to get a feel for their level of expertise and service.
- Are there any upfront fees for your service?
- What do you feel is the best type of mortgage for my situation and why?
- What lenders do you work with?
- How long will it take for me to get pre-approved?
- What are the penalties for breaking a mortgage?
- How much will I be able to borrow?
- Is there any way to get a lower rate?
How the lender answers your questions is just as important as what they say. Are they prompt, courteous, and clear? Or does it seem as though they are just going through the motions? The right professional will not just tell you what you want to hear to get your business, but will instead provide you with informative and accurate answers relevant to the current market.