Everything you thought you knew about buying a home has probably flown out the window during the coronavirus pandemic.
Yes, interest rates are at historic lows — but they’re also jumping up and down, making it hard to know whether you’re getting the best rate possible.
Lenders are changing their criteria for borrowers to avoid lending to people they view as financially unstable during the crisis. Companies that once offered mortgages to people with credit scores of 620 are now requiring scores of 680 or even 700, and some are demanding higher down payments.
Buying a home can be confusing under the best of circumstances. But now that the process is changing every day, you may be looking for help.
Now could be a better time than ever to use a mortgage broker — the middleman between you and a lender — who can help you find a lender with the best deal.
What is a mortgage broker?
As you prepare to buy a home, you might research a few lenders and choose the one with the best rates — or, depending on your credit score and money for a down payment, simply the one that will offer you a loan.
A mortgage broker’s job is to do all that research for you. They have partnerships with a variety of lenders, and they set you up with the best fit based on your financial situation and preferences.
“They will often have a wide array of loan products that are available to them,” said Andy Taylor, General Manager of Credit Karma Home. “Think of a broker who has access to 25 different wholesale lenders. Those are wholesale lenders that that average consumer wouldn’t be able to reach any other way.”
Using a mortgage broker as a middleman gives you access to lenders you may not have known existed, some of which only do business through mortgage brokers.
“The benefit of using an independent mortgage broker … is that they shop on your behalf and they’re going to get you the best loan,” said Alex Elezaj, the Chief Strategy Officer of United Wholesale Mortgage, a company that only works through brokers. “That’s the best way to do it, because they’re working with multiple lenders, and you don’t have to try to figure out, you know, ‘What does this mean?’ and ‘What does that mean?'”
You might stumble upon a mortgage broker that will charge you a fee, but many brokers are paid by the lenders they have partnerships with, not the borrowers. To be safe, ask a broker how they make money before working with them.
Mortgage brokers could help you get a loan and lock in a low rate during the coronavirus pandemic
Using a mortgage broker could actually be your ticket to getting a loan during this hectic time.
“If you went straight to Chase right now and you had [a credit score of] less than 700, you would be out of luck,” Taylor said. “You just wouldn’t be able to find a loan. But imagine that you went to a broker and they said, ‘Hey look, I’ve got some lenders in my wholesale network that have standards up to 700, but I actually have many that are still pricing 660 to 680. That … could actually allow you to get a loan.”
And if you have a good credit score and plenty of money for a down payment, a broker can also help you lock in a low APR as rates rapidly fluctuate. A mortgage broker does the research for you among the lenders they work with, which can save you a lot of time and stress, and ultimately land you a better rate.
“The only thing that I would say a broker might not be the best area to win in is maybe with a jumbo loan,” Elezaj said. Jumbo loans are mortgages exceeding the loan limits set by Federal Housing Finance Agency (FHFA), which is $510,400 for a single-family home in most US states. “Banks will typically be a little bit more competitive on jumbo loans because they want the customer acquisition of checking, savings, car loans, all of that stuff.”