Finding the Right Mortgage Broker for You And The Benefits of Using an Independent Mortgage Adviser in 2021
In each state there are thousands of mortgage brokers. How do you know which one to choose so that you will end up at the closing table on time with the interest rate, loan terms and fees promised to you? Here are some tips and data that hopefully will give you the information and tools needed to find the right mortgage broker, how to work with them and to help minimize the risks before you get to the closing table.
First let’s eliminate some of the ways borrowers typically choose a mortgage broker. This may just remove most of the problems before they occur.
How Not to Shop for a Mortgage
As a lot of people do, you could go to the Internet and call the first few mortgage brokers that pop up, check the local Sunday Real Estate Section to see who has the best rate, or call someone from out of the Yellow Pages. However these should be defined as ways NOT to shop for a mortgage:
Most every mortgage broker is listed on the Internet. While it is a great resource, it is not the best way to shop for a mortgage. It may be obvious to some, but just because a mortgage broker’s Web site shows up high on search engine listings does not mean they have the lowest rates or have the best service or are even reputable. High search engine rankings do not speak to these factors, but rather to the fact that the webmaster who built the Web site probably spent hundreds of hours building and fine-tuning their site to show up on the Internet listings when you type in certain mortgage “keywords”. Search engines do not rank listings by the quality or reputation of a broker but more by the amount of other similar Web sites that link to that Web site, the amount of visitors it receives, how much the broker may have paid to be listed there and many other factors.
Once I had a customer call me and say “You must be reputable as you showed up #1 in Google.” Yes, I am reputable, and I do like to think we offer very good service and low rates, but that is not why my broker was listed at the top. (Number one out of over 275,000 listings for the term “atlanta mortgage”.) It was because the webmaster spent hundreds of hours building and fine tuning all of the pages within the site to show up with high rankings.
There are many Web sites that list mortgage company’s rates on-line. I don’t put too much stock in sites that list these company’s rates online. Typically mortgage brokers pay to be listed on those sties and some are “affiliate” sites. Which means they are charged a fee when the visitor goes to the link that was clicked on. To find out if you are on an “affiliate” site, click on the link it takes you to and examine the web address. If it has a code at the end of the domain name, such as “http://www.anybroker.com/source=2519” it is generally an affiliate. There is nothing wrong or illegal about this, just realize some of the sites may be biased by the companies that pay or give an incentive to be listed on their site.
Another tip is not to waste time in clicking on sponsored links. On Google they are listed in the right column, (and recently at the top of every page in a shaded box) while AOL’s links are lightly colored boxes at the top and bottom of the page and on Yahoo they are listed in the column on the right side and at the bottom of the page in a colored box. As they name implies they are “sponsored” links which means to be listed the broker has paid to be there.
Be aware that if you complete a form on a mortgage Web site concerning wanting more information prepared to be flooded with calls or emails from mortgage brokers wanting your business. There are a lot of Web sites that are only “lead” sites. They get your information and then sell that information to mortgage brokers across the nation. Only submit information on the Web site of the mortgage broker that you know you will be working with.
The bottom line is the Internet is a great way to find out more about a mortgage broker that you are considering using but it may not be the best way to find one you can trust.
Choosing a Mortgage Broker Based Solely On Rate
The interest rate obtained on a mortgage is one of the most important factors of a loan, but it is not everything. There can be over 30 separate closing fees that can factor into the total cost of obtaining a mortgage loan.
Don’t be fooled by brokers advertising that they have the lowest rates. Most mortgage brokers and lenders have about the same rate on comparable programs on any particular day. They may quote them with or without Loan Origination fees and/or Discount Points, which makes it even more confusing. When selecting a mortgage broker the interest rate is an important factor but let’s take it a step further to get a better picture of the total cost to you.
Sometimes when a prospective client calls me asking “What’s your rate?” I ask them what they would like 6%, 5% or even 4%. The fees to obtain such a low rate may be exorbitant, but we offer it. So again, rate isn’t everything. It is the total cost that the borrower ends up paying that makes the difference.
You have probably seen mortgage brokers advertise rates at 1%. Do you really believe that 1% money is available? The answer is No. This is what the monthly payment is based. Don’t be deceived by just rate.
The Liar’s Rate Sheet
Another way some borrowers shop for a mortgage broker is by comparing rates in the Sunday Real Estate section of their local newspaper. In the industry this is referred to as the “Liar’s Rate Sheet”. Here is how it works. Mid-week the mortgage companies forward rates and APR (Annual Percentage Rate) to the newspaper for the different loan programs. They may quote the actual rate for that day or they may be quoting what they think it will be on Monday. All mortgage companies know you can’t call them until the first business day of the week so they may hedge the rate a little to get the phone to ring on Monday. I am not suggesting that all or even a majority of the mortgage companies that list their rates in the newspaper do this. Most mortgage brokers and loan officers that I have met over the last 20 years are honest and ethical. But this is a very competitive business and there is a lot of money to be made on every loan.
Another flaw in the Liar’s Rate Sheet is in the APR’s that are listed. A simple definition of APR is, the true cost of the loan including certain designated closing costs. There are some loan officers that do not know how to calculate APR correctly. So do not base your decision on choosing a mortgage broker solely on the APR quoted.
Here is a sample of 10 recent rates and APR’s quotes in a major metropolitan newspaper by local lenders and mortgage brokers: (These are based on $175,000 loan amount with 20% down payment, 30 year fixed rate loan.
Note Rate APR Origination Fee Discount Points
- 5.875% 6.050% 0 1.90
- 6.000% 6.103% 0 0
- 6.125% 6.603% 1.00 .13
- 6.125% 6.270% 0.16 0
- 6.250% 6.122% 0 0
- 6.250% 6.305% 0 0
- 6.250% 6.425% 0 0
- 6.250% 6.624% 0 1.00
- 6.375% 6.289% 0 .75
- 6.375% 6.470% 0 00
If you were trying to make a decision as to what mortgage broker you may want to contact based upon the note rate (interest rate) or the APR you would not only be terribly confused, you would also be misled. The only way you can accurately compare rates and fees among mortgage brokers is with an accurate and complete Good Faith Estimate and complete Truth in Lending forms.
It is also important to remember that many, if not all of the mortgage companies and brokers listed typically pay to be listed there each week.
If you want a partial list of mortgage brokers in your city use the Sunday paper for that reason. Utilizing the phone book or Internet will give you a bigger list. If you want a full list go to your state’s Web site that lists all licensed mortgage brokers in your state.
Where to Start
When you are looking for any type of professional service person, accountant, dentist, etc, who do you turn to? People typically ask the opinion of someone they trust, be it family, friends, neighbors, co-workers, attorney, accountant or other professionals. The referral method can also be used to help find a mortgage broker.
Make a list of 10 people (who have a mortgage) and ask the name of the broker they worked with. Be sure and get the name of the person they worked with. Keep in mind that service between one broker or loan officer and another can vary widely so you will want to contact that specific person, not just anyone in that broker. Also be sure to ask if they were happy with the rate and service they received.
Collect at least three names of loan officers or brokers or maybe even up to seven or eight. Why so many? Because it may have been a few months or years since your referral source last used this individual and it is possible that they have moved to a different company or even changed careers. In addition, not every mortgage broker is going to want to work with you concerning items that we are discussing. Also list any broker or loan officer that you have used in the past and were happy with.
A wise business man once told me. “Know who you are dealing with”. Now that you have a preliminary list of names let’s try to find out a little more about whom you are dealing with. To help with this I have put together two simple approaches:
1. Background checks
2. Making contact (Parts A and B).
Step 1 – Simple Background Checks
Don’t worry, there is no need to hire a private investigator or do any “dumpster diving” to gain secret information. I do, however, suggest that you do a little investigative work. It should only take about 30 minutes and it will not cost you anything. In fact, it may save you a bundle of money and stress later in the process.
Visit the government Web site for the state in which the mortgage broker is located that you are researching. Locate the page that has a list of mortgage brokers or lenders. If the company you are researching is not listed they may be listed under a different name. Also you may be able to search by the individual or loan officer’s name.
If they are listed on the State’s Web site, it may also list how long the broker has been licensed (you should do business with them only if they have been in business for a minimum of two years), how many loans they have closed in the previous year, how many employees they have, and if they have had any consumer complaints made against them, administrative fines levied or regulatory orders (such as “cease and desist” orders) placed on them, any of their employees or broker. Be sure to search under the individual broker or loan officer’s name, keeping in mind that some states do not license loan officers so that person may not be listed. Checking with the Better Business Bureau may give you some additional information but in my experience most mortgage brokers and lenders are not members of the BBB.
Check to see if they are a member of the National Association of Mortgage Brokers. http://www.namb.org. I highly recommend working only with a broker or loan officer that has such designation because it shows a higher degree of professionalism and dedication to the industry.
Another organization to check with is the Association of Professional Mortgage Women. http://www.napmw.org Members of this association are made up of individuals in all aspects of the mortgage industry, however, you typically will not find many brokers or loan officers as members. This is a great resource for finding mortgage professionals in affiliated services in the mortgage industry such as title insurance brokers, appraisers, closing brokers and real estate attorneys.
There are also local mortgage associations that are not affiliated with a national association and I would still give credit to the broker or loan officer for being a part of a group that offers ongoing education and sets goals of ethical standards to their members.
Look on the company Web site to see if they are a member of any of these mortgage organizations or other trade associations. However, keep in mind that just because you see one or all of these logos or references on their Web site, does not mean that the person you are working with holds the designation or is a member of that association.
Here is a recap of information to research as you are narrowing down your top candidates:
- Broker or Lender?
- State Web site for complaints?
- How long in business?
- BBB complaints?
- Has a Web site?
- Rates are posted daily?
- Member of any national or local mortgage association?
- Professional designations?
STEP 2 – MAKING CONTACT
The next step is to contact the mortgage broker or loan officer to whom you were referred.
Part A – Approaching the Broker
If you were referred to a specific loan officer try to stay with that person. If you just have a broker name or if the individual you were referred to is no longer there and you still wish to check out the broker, ask for the broker or manager of the company and not just any loan officer who gets the phone. While this may not always be possible or practical, unlike a loan officer, the broker does not have to split the income with anyone else. In a larger broker the broker may not be able to give your loan the full attention it needs. But always start with the broker or manager and work down.
Many years back I received a phone call from a gentleman stating he was looking for a mortgage broker to “establish a business relationship with.” That struck me as a professional way to do business. I ended up doing a couple of transactions with him and felt we had a good working relationship. He approached me as a professional and I treated him as such. The point is, when you contact the person you are considering working with, let them know you are looking for a mortgage broker to establish a business relationship with.
Here is a suggest way to start the conversation:
“My name is _________ I am shopping for a mortgage and am calling a few brokers that have been recommended to me to see who I would like to establish a business relationship with. I was recommended to you by __________.
Do you have a few minutes to speak?
Great, I have just a few questions:
If they agree to speak to you, briefly lay out what you are doing, including if you are looking for financing for a purchase or refinance and the loan amount. In addition, mention your credit scores or credit history, the percentage of down payment. Then ask, if they offer the type of financing you need. If the person starts to offer rates, terms etc. politely let him know that you are not shopping for the rate and program now, rather you just want to get some basic information.
Ask if they are a broker or lender. If you are speaking with a loan officer then ask if the broker is a broker or lender. If they are a lender, try to politely end the conversation or tell them you need to work with a broker. (I recommend only using a mortgage brokerage broker, not a mortgage lender for your transaction.
Another good question to ask is how long they have been in business. (If speaking with a loan officer – how long they have been with this broker as well as how long they have been in the mortgage business.) I suggest you work with someone that has been in the mortgage business for at least two years.
It is important not to commit to a meeting on the phone or let them send you a Good Faith Estimate. The most important information is if they are a broker or lender, how long they have been in the business and maybe if they offer the type of financing you are looking for.
Part B – The Interview
Once you have narrowed down your list of potential mortgage brokers that you may want to deal with, it is time for the interview.
Start by calling them back and let them know you may be interested in working with them and you would like to get more information. I always suggest that you meet face-to-face at their office to get a feel for them and their broker. If you can’t meet with them at their office you can do it over the phone. Be prepared with your list of questions listed below, as they may want to do the interview immediately.
When you speak with them, again mention what type of loan you will need, (purchase or refinance, conventional, construction, investment, etc.) and be prepared to go into some detail about your financial situation, including employment status, credit history, down payment amount and the source of it and a rough idea of your financial assets. Do not let them start taking an application on you. You are there to interview them, not the other way around.
Do not give out your social security number during this interview. There is no need to do this yet as you are not going to decide on what broker to deal with until you have interviewed everyone on your list.
Questions to Ask the Mortgage Broker
Here is a list of suggested questions to ask the broker or loan officer.
- Will I get a signed Good Faith Estimate?
- Will you guarantee your estimate of closing costs? If not all at least yours?
- Who will pay for any extra charges that are over and above your Good Faith Estimate?
- Will you update the Good Faith Estimate as we move through the process?
- Is there an extra cost if I do not set up an escrow account (commonly called waiving escrows) providing the loan program allows that to be done?
- If my credit score affects the interest rate and/or program is it possible that you will help me raise my score to obtain a better rate and program?
- Does your credit reporting system offer a Credit Score Analyzer so we can work on raising my score?
- What is your approximate closing ratio for loan applications taken?
- Do you have in-house or contract processing? (If you are scoring these answers then in-house processing gets an extra point.)
- Will it be okay if I speak directly with your loan processor?
- How often can I expect to be updated on the progress of my loan?
- (If purchasing). My contract has a date to get approved for financing Can you make that deadline?
- What will you provide me to give to the seller to satisfy that stipulation?
- Will I get a copy of the appraisal, title commitment, and credit report?
Note: Some, but not all states require the mortgage broker to give you a copy of the credit report that they have pulled. If they are not allowed to give you a copy they must at least give you a form that shows the credit scores on your report.
- Do you utilize Automated Underwriting?
- May I pick my own title or closing broker or attorney?
- Will I have a Preliminary Closing Statement 24 hours prior to the closing so that my attorney and I have time to review it?
- Will you be present at the closing?
- Do you charge an application fee? (Be aware that some brokers charge a non-refundable up-front loan application fee. Is the fee applied towards the appraisal and credit report? Ask if you will receive a refund of the unused portion).
- What is your typical Loan Origination fee on a loan of this size?
- Is there a separate broker fee? If so, how much is it?
- What is your processing fee?
- Is there an admin fee or any other fees that will be paid directly to you?
- Will you refund any overage on the credit report or courier fees?
Note: Do not mention the word or imply that there are any junk fees. It may be construed as offensive to a broker or loan officer. Be specific when addressing the fees or charges.
- Do you have a rate float down policy?
- What if I lock a rate and the rate goes down? Will you lower the rate?
- How will you secure my private financial information?
- Do you have a written information and privacy plan?
- How long have you been in the business?
- About how many lenders are you approved with?
- What professional associations are you a member of?
- Do you have any professional designations?
- Tell me about your broker and why I should choose you to handle my loan transaction?
Loan Program Question
- If you are unsure or if you would like more input ask: What loan program would you suggest?
Cost Estimate Question
- Would you mind preparing a Good Faith Estimate and Truth in Lending statement?
Broker Questioning Opportunity
- Do you have any questions of me?
When the interview is complete, thank them for their time and let them know that you will get back with them. If at this point you feel comfortable with working with this broker or loan officer you may ask that he forward a Good Faith Estimate and Truth in Lending to you so you can review these forms and estimates.
EVALUATING THE BROKER
After your interview you may want to ask yourself some other questions to help determine or grade the mortgage broker regarding how you think they will handle your loan.
Consider these points:
- Did the mortgage broker have any questions for you?
- Did you feel he wanted to know more about your overall financial goals and how this mortgage fits with those goals?
Take time to evaluate which broker you wish to work with. Do not make a commitment to anyone until you have reviewed the Good Faith Estimate and Truth in Lending disclosures closely.
When you do receive the Good Faith Estimate, and hopefully, the Truth in lending statement, it should look professional and be complete have accurate dates and other information disclosed.
Hopefully, after you have done all of your homework you will be able to find a broker you feel comfortable with and that you believe will give you honest and ethical service.
To learn more, go to [http://www.secretsofmortgagelending.com]
Excerpted from the e-Book, Secrets of Mortgage Lending.
About The Author – Adrian Skiles, GML, began his career in the mortgage business over 20 years ago. He has held the title of a loan processor, loan officer and branch manager. In 1997, Mr. Skiles opened his own mortgage brokerage firm in Atlanta, Georgia where he is currently located and offers mortgage services for both residential and commercial lending.
He is a long time member of the National Association of Mortgage Brokers and the National Association of Professional Mortgage Women. Mr. Skiles’s broker and employees have achieved awards for continued success in the mortgage industry including Georgia Mortgage Broker Association “Top Gun” Mortgage Broker and the Atlanta Business Chronicle “Top Mortgage Broker Performer” for the last five years.
Types of mortgage advice
So what are the different types of mortgage advice and where would you expect to find them?
This type of mortgage broker offers the least consumer protection, they will simply ask a set of questions to narrow the customers requirements and thus filtering the number of mortgages available. They then present the customer with a small list of possible mortgages for the consumer to choose one appropriate. The consumer protection here is based on the script of questions the broker asks. The script is a process determined prior to the consumer appointment, and is impersonal. Therefore specific personal circumstances are unlikely to be assessed. It also assumes that the customers answers are factually correct and the final choice is made solely by the consumer. Although no advice is offered these brokers do handle the arranging of the mortgage on the consumers behalf, and therefore dealing with all the chasing and removing stress from the process.
Where would you expect non-advised brokers to exist?
Well believe it or not many non-advised brokers are within the high street banks and building societies.
This type of services is where a mortgage adviser uses their knowledge and skills to provide the most suitable mortgage to suit a consumers personal circumstances. This will involve a full fact finding interview, affordability assessment, discussion on the consumers future plans and aspirations, all of which provide key facts on a consumers requirements, and therefore a means for the adviser to identify suitable products. The adviser will not however, handle the arranging of the mortgage, and therefore the consumer would need to deal directly with the bank or buildings society to arrange the mortgage.
Where would you expect advice-only advisers to exist?
These advisers generally do not exist alone this is often a service provided through the ‘Independent Mortgage Adviser’ type below. And often comes about when the most suitable mortgage is only offered direct through high street (i.e. not through mortgage advisers/brokers). The adviser would therefore offer an advice-only option to the client and often charge a fee for this service. Although the client must deal directly with the bank or building society their mortgage adviser often provides support to the consumer.
Tied mortgage advisers
Tied mortgage advisers come in two forms ‘only offering mortgages from one lender or its own mortgages’ or multi-tied ‘only offer mortgages from a limited number of lenders’. This clearly limits the number of mortgage products available to match a consumers personal circumstances and in a lot of cases they may not be able to offer the most suitable mortgage product and therefore advice may result in the best mortgage they can offer, being woefully inadequate.
Where would you expect tied mortgage advisers?
High street branches. A consumer calls into their local building society branch and their in house mortgage adviser can only offer mortgage products from that building society. Consumer choice and mortgage product suitability are considerably reduced. Whats more, high street branches often offer low mortgage rates/fees as a loss leader (marketing term to bring in business) and then try to sell their tied insurance products which are often also woefully inadequate and expensive.
Whole of market advice By far the best coverage these advisers can offer mortgages from all the UK mortgage lenders (having mortgage adviser/broker routes). The vast amount of mortgages available through these advisers is likely to cover the individual circumstances of a consumer. Whole of market mortgage advisers offer advice through conducting a full fact finding interview, affordability assessment, discussion on the consumers future plans and aspirations and then can arrange the mortgage through the lender thus alleviating the stress which comes when purchasing a house.
Where would you expect whole of market advisers?
These advisers are usually separate firms often found in the yellow pages or through the internet they are sometimes linked to estate agents. On an initial meeting mortgage advisers should declare if they are whole of market and this will be disclosed in the ‘Initial Disclosure Document’ they provide you. If you are not sure if an adviser is whole of market then ask them.
Independent whole of market mortgage adviser
Finally this type of adviser has the ultimate scope of the mortgage market, not only can they offer mortgage advice from the whole of market (lenders with mortgage adviser routes) but can also offer an advice only process if they identify a high street direct deal is more suitable. The ‘Independent’ statement indicates that the adviser must offer the consumer a fee based service if required. This means that rather than the adviser taking commission as payment for the mortgage advice, the consumer can opt for paying a broker fee and any commission is rebated to the consumer. The benefit of the fee based service is the consumer knows the adviser will not be swayed by higher commission mortgage products when selecting a suitable mortgage, however these days this is highly unlikely as the mortgage adviser must prove to the regulator why a particular mortgage is most suitable. Some occasions where the commission is quite considerable this would mean the consumer could receive more money than the broker fee paid and therefore would be better off taking the fee based approach.
Where would you expect to find Independent Whole of Market Advisers?
Like the author of this document Independent Mortgage Advisers are usually separate firms often found on the high street, yellow pages or through the internet and they are sometimes linked to estate agents. On an initial meeting an independent mortgage adviser would declare that they are whole of market and that they offer a fee based approach if required and this will be disclosed in the ‘Initial Disclosure Document’ they provide you. If you are not sure if an adviser is independent and/or whole of market then ask them.
What do independent whole of market mortgage advisers do for consumers?
The benefits of opting for an independent whole of market mortgage adviser include but are not limited to the following: –
- Treat customers fairly.
- Take time to gain key factual details of the consumers personal circumstances and aspirations.
- Support and inform the consumer from initial enquiry right through to completion and beyond.
- Provide an informed view on the housing market in general (price negotiation, leasehold issues etc).
- Provide a individually tailored service specific to the customers needs, not a faceless “one size suits all” (non-advised) service.
- Advise consumers to thing about their long-term interests as well as the short-medium term thus minimising risks.
- Work for the consumer – estate agents, lenders and insurance providers have a different agenda.
- Explain the features and benefits of different mortgage and protection options.
- Free to act based on conscience and fairness as not usually directly targeted on specific areas.
- Protect consumers data and privacy.
- Provide general support during what is acknowledged to be one of the most stressful events in life.
- Provide a knowledgeable “Ally” in what can be a very worrying process.
- Provide proficient, impartial, examination of mortgage products.
- Identify when specific lending criteria restricts consumers personal circumstances.
- Expert guidance in complex scenarios (shared ownership/shared equity, right-to-buy, adverse credit).
- Identify the potential lender in unusual situations, thus avoiding the need for multiple credit checks.
- Select the best protection providers for consumers with health issues or unusual insurance histories.
- Choose the most appropriate products, from the whole of market for each aspect of a consumers mortgage and protection needs, and thus increasing their ability to afford their commitments, even when things go wrong.
- Highlight unusual exclusions on protection and general insurance products.
- Ensure the provision of appropriate and customized protection products.
- Quickly find an alternative lender if declined without wasting the consumers time.
- Can arrange property insurance in ample time to be ready for exchange of contracts on purchases.
- Encourage competition and innovation from lenders.
- Assist in calculating affordability, ensuring that consumers can afford their mortgage and protection commitments, along with their other commitments.
- Perform data input/entry for the consumer, reducing errors, omissions and most importantly non-disclosure.
- Take responsibility for the advice and recommendation provided, thus increasing consumer protection.
- Protect the consumer from corporate sales tactics used by some lenders and estate agency chains.
- Understanding the urgency of some transactions and “go the extra mile” to meet deadlines.
- Collate, verify and supply documentation for the lender, thus reducing delays in processing and expedite the process for the consumer.
- Liaise with third parties in the transaction, tracking progress and any developments updating consumers throughout.
- Use past knowledge and awareness to predict problems and resolve them in advance.
- Act as advocate for the consumer during the application process.
- Explain the mortgage offer and assist in fulfilling the offer conditions.
- Can find appropriate lenders and insurers for unusual properties ( thatched roof, flying freehold flats etc).
- Protect consumers from aggressive third-party marketing.
- Often personally available outside of normal working hours to answer questions or resolve issues.
- Care about consumers and provide an ongoing long-term service, often several generations of the same family.
Steve Wentworth formed his firm Wentworth Financial Services Ltd in November 2007 and has been in the Mortgage Industry since November 2002. Visit his website if your require an Independent Mortgage Adviser.