When you buy a house, especially if you're doing it for the first time, you don't want it to be a hassle.
So you think to yourself:
How can I make this as easy as possible?
I thought the same thing when I bought a home in 2016. It wasn't my first time buying -- I'd owned a home before with my ex-husband. But it was my first time buying a house solo and I just didn't want it to be a headache.
I got connected with a real estate agent and pretty soon, found a house I wanted to make an offer on. Once my offer was accepted, the next step was getting a mortgage.
I could have gone straight to my bank and applied for a home loan.
But what I did instead was reach out to a mortgage broker.
My experience taught me that this wasn't the best move.
What Mortgage Brokers Do
If you've never bought a home before, you might not know what mortgage brokers are all about. Here's the deal:
Mortgage brokers don't actually make home loans. Instead, they research different mortgage options for you to help you find the best one for your needs and budget.
To do that, you have to give the broker certain information, including:
- Permission to check your credit reports and credit scores
- A copy of your most recent tax return
- Recent pay stubs
- Your employer's contact details so they can verify your work history
That sounds easy enough, right?
And in exchange for giving the broker those details, they handle all the lifting of mortgage loan shopping.
So why is that good for you?
Well, for one thing it saves you time. You don't have to spend hours looking for a loan because the broker is handling that.
Mortgage brokers' responsibilities
Mortgage brokers have professional expertise and resources the average home buyer doesn't.
They usually have a larger network of lenders they work with so they can really drill down to what types of loans you're most likely to qualify for and what interest rate you're likely to get.
Mortgage brokers are supposed to help you find the very best rate possible, based on your credit and financial profile.
That's all to the good because the lower your rate, the lower the total cost of borrowing ends up being.
And aside from all that, the mortgage broker takes care of communicating with the mortgage lender once you decide on a loan.
You give the broker all the paperwork and information the lender needs for underwriting. That gets passed on to the lender.
Ideally, all you have to do is answer any follow-up questions the lender directs to the broker. Then, show up at closing to collect the keys to your new home.
The cost of using a mortgage broker
In return for doing all that, the broker charges a fee, which is usually a percentage of the loan amount. The buyer or the lender can pay this.
If the broker expects the buyer to pay, they might offer what's called a lender credit, which essentially builds the fee into the loan.
That way, you pay nothing out of pocket.
All of that sounded great to me when I was ready to buy again.
I was working on growing my freelancing business and raising two kids and I just didn't have time to get bogged down in the details of finding a mortgage.
So I chose to go with a broker. But things didn't go as smoothly as I'd planned.
My Mortgage Broker Experience
The relationship with my mortgage broker started off pretty well.
I found them through an online search, filled out a loan prequalification application and waited to hear back.
Within 24 hours, the president of the company reached out via email to introduce himself. So far, so good.
He asked me to sign off on an electronic form giving him permission to check my credit. I agreed and a couple of hours later, he came back with some initial rate quotes for a few different types of loans (FHA, conventional and USDA).
From there, I moved on to the next step: getting pre-approved.
Pre-approval means that a mortgage lender checks your credit and finances to conditionally approve you for a loan.
About giving the broker some details about the house I wanted to buy, I was pre-approved for both a USDA and an FHA loan.
At this point:
I felt like things were cruising along pretty well.
Left in the dark
I was really leaning towards the USDA loan, since those require zero money down. But here's where things with the broker started to go off the rails.
What the broker didn't tell me -- in fact, what no one at the company seemed to know -- is that you can't qualify for a USDA loan if you have enough in cash savings to make a 20 percent down payment.
Which I did.
By the time the broker got clued in and let me know, I'd already filled out the full mortgage application for the loan, with the hard inquiries on my credit report to prove it.
This is about a month into working with the broker. So while I was a little annoyed, I asked for the next option, which was an FHA loan.
Doing paperwork again
I filled out yet another application for the new loan. (And I'm not doing this online either--I had to fill out paper applications and pay to have them FedExed to the broker overnight.)
Since a month had gone by from my last time applying, I also had to go back and get new copies of all my bank and financial statements.
It didn't cost me any money but it did take up time that I didn't want to spend.
The good news was:
I was approved for the loan pretty quickly after that. But, there were still more bumps in the road to come.
I repeatedly had to email copies of my pest, septic and home inspection reports because the broker kept losing track of them.
I had to pay to file a copy of my separation agreement with my local registrar's office because the broker told me I needed to--only to find out later the lender didn't care anything about it.
Several times I received emails with personal details about someone else's loan because my loan processor at the broker's office made a mistake.
Broker missed a key step
The biggest mark against the broker came on the day of closing.
I was literally sitting in the closing attorney's parking lot, about to walk in when I got an email from the lender.
The broker was supposed to have passed on contact info for a couple of my freelance clients so the lender could verify my self-employment. Only they didn't.
So on the day of closing, the lender emailed me directly to let me know they weren't going to fund my loan until they spoke to someone I freelanced for.
I immediately reached out to the broker, who shifted the blame to the lender.
Once I got done angry crying, I emailed one of my clients to see if they could help me out. They did, and a few hours later, I was able to finally close on the loan.
It all worked out in the end.
But altogether, it took nearly five months and over 150 emails to the broker to get there -- none of which I'd anticipated.
Mortgage Brokers Aren't Right for Every Home Buyer
My case may be unique, or it might not.
I personally don't know anyone else who's ever used a mortgage broker to buy a home.
My broker dropped the ball big time, more than once. That doesn't necessarily mean the same thing would happen to you if you were to go through a broker.
But it's important do some research before you choose a broker over working with a mortgage lender directly.
- What the broker charges and how they get paid. If you're going to pay a fee for their help, it's better to know that up front.
- The types of lenders the broker works with. The broader their lender network, the more variety you might have when it comes to loan options.
- How responsive they are to your initial communications. My broker was actually pretty good about answering emails quickly, even if they weren't always that helpful when they did.
- What the broker's actually going to do for you. Are they going to submit your loan paperwork? Field questions from the lender? Choose a closing attorney? Again, these are things that are good to know up front?
- The broker's overall reputation. This is where I dropped the ball. I didn't read any online reviews before I committed to working with the lender. If I had, my home buying experience might have been way different.
Also, remember to do your own comparison shopping when it comes to interest rates.
Even though a broker is supposed to help you find the best rate, it doesn't hurt to see for yourself what's out there.
You might come across a better deal and find that you don't need the broker at all.