Mortgage Brokers and First Home Buyers
If you’re considering buying a first home, you might be wondering what a mortgage broker does and can help you through the process.
There’s a lot of information to understand when buying your first home, and if you need help navigating the complexities of the application process, a mortgage broker might be able to help. But, there are some things you’ll want to keep in mind.
What does a mortgage broker do?
A mortgage broker is someone whose job it is to help you get a home loan or mortgage from a list of financial institutions they work with. There are a variety of home lenders in the market, and a mortgage broker acts as the middleman between you and them, usually consulting with a panel of specific lenders to find a deal that will work for you. In general terms, a mortgage broker could:
- carry out an assessment of your needs and financial situation
- inform you of the mortgage options available to you on the market, from the lenders with whom they do business
- use your information to assess which home loans may be in your best interest
- possibly suggest one or more options or recommendations to consider in your best interest
- help you gather the documents you will need to apply for the loan
- guide you through the application and settlement process.
Is it easier to get a mortgage through a mortgage broker?
Using a mortgage broker when buying your first home can help make the process easier than doing it yourself, but that will depend. A mortgage broker is an expert who understands the intricacies of the home loan application process and may be able to walk you through it, explaining interest rates, fees and mortgage features. ‘a loan. They will also likely be able to help you explain the exact documents you will need for your application – this usually includes information such as bank statements, payslips and lists of your daily expenses. On top of that, a mortgage broker will typically have access to a variety of home loans, from a panel of different lenders. This means that they will likely have knowledge of a wide range of the home loan market and may be able to suggest a home loan that can meet the needs of a first-time home buyer.
Keep in mind, however, that a mortgage broker will have limitations with the lenders on their database, and their panel of lenders may be broad, but they won’t include all lenders in the home loan market. It’s also worth remembering that you are free to shop around and meet with more than one mortgage broker, to get an idea of the quality of the deal they might be offering you. How easily you find it approved may also depend on factors such as your credit score and borrowing capacity. There are other options first-time home buyers can consider, such as dealing directly with a bank or financial institution, or even with an award-winning supplier. You can also compare home loans with Canstar.
Do Home Buyers Pay Mortgage Brokers?
According to ASIC’s review of mortgage broker compensation, brokers generally do not charge fees directly to consumers and generally do not receive commissions from their employers. This means that the way mortgage brokers most often make money is by receiving commissions from lenders. There are four main types of commissions that are generally earned by brokers:
- Upfront fees, which are paid by the lender when a customer takes out a loan.
- Trailing commissions, which are paid by the lender each month while the loan is active.
- Volume and non-volume bonus commissions, which are paid by lenders if brokers meet certain criteria.
- “Indirect dollars” or non-monetary benefits, which may include benefits such as free conference attendance and overseas travel.
ASIC warns that this commission-based structure has the potential to create a conflict of interest between consumer and broker, as commissions, bonuses and “free dollar” benefits may induce a broker to favor a certain lender or lenders.
Do first-time buyers need a mortgage advisor?
You don’t need a mortgage broker to buy a first home. You can compare the home loans available on the market yourself, and contact the bank or lender that best suits your needs, or that offers the loan that seems most suitable for you. A mortgage broker is just one option if you want someone who can make the application process easier for you and direct you to a lender who might meet your needs. This can be useful, especially for first-time buyers who have never navigated the home loan market before.
What questions should a first-time home buyer ask a mortgage broker?
Questions first-time home buyers should ask a mortgage broker include:
- What type of interest rate is best for you? Depending on your needs and situation, a broker may recommend a fixed or variable rate loan, or a split rate loan combining the two.
- What fees, charges and borrowing costs are attached to the loan? Home loans can have upfront and ongoing fees, so it’s worth asking your broker to explain them all in detail, to make sure you understand what you’ll be paying. There may also be borrowing costs such as loan application fees, property appraisal fees, and even mortgage insurance from lenders. It is important to understand exactly the costs you will incur when taking out a home loan.
- What is the home loan comparison rate? A home loan comparison rate is a measure of the true cost of a loan, when interest payments and fees are combined. It is important to be aware of the comparison rate because a loan with a lower interest rate may end up being more expensive when fees and charges are taken into account.
- What is the size of the panel of lenders? Brokers will generally work with a defined panel of lenders, which means that they will not scrutinize the entire home loan market. It can help to choose a broker with a wide range of choices – more lenders can mean a bigger selection of home loans to consider.
- What information will you need for your mortgage application? A mortgage broker should be able to tell you exactly what kind of documentation you will need when applying for a loan, to make sure everything is in order.
- Are they licensed? Industry bodies representing mortgage brokers, such as the Finance Brokers Association of Australia Limited (FBAA) and the Mortgage & Finance Association of Australia (MFAA) may be able to help you find an accredited broker. You can ask a broker to give you details of their licenses, or check online.
- What are their fees and commissions? It may be useful to find out how much a financial institution will pay your mortgage broker for recommending your business, and whether it will be an initial or ongoing commission, as well as any bonuses .
Consider the pros and cons before making an appointment and check that the broker you choose has the qualifications and experience to provide you with quality advice and support.
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