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Should You Use a Mortgage Broker or a Bank?

What is a mortgage broker? Why not just go to a bank? Should you use a mortgage broker...?

The individual who is handling your mortgage or loan is your broker. They will represent your efforts to secure a loan based on your needs and goals and qualifications.

Why work with a mortgage broker rather than a bank? Mainly because a mortgage broker can shop around to find you the lowest interest rate. At your local bank, the loan officer only has options related to what "their" bank is offering.

Essentially, a mortgage broker is the go between or middleman/ woman who helps you find a loan via their preferred lender or another bank. Often a mortgage broker is compared to a matchmaking service, but instead of helping you find love they help you borrow money via an interest rate and a loan.

Discuss with your mortgage broker which rates are the safest and most appropriate according to your plans and income. In fact, working with a mortgage broker will probably make you feel safer and more secure because of his/her formal relationship with the lender. After all, the broker is bringing business to the lender, and he/she should feel greater responsibility towards honoring commitments with the broker’s clients.

When speaking to lenders and applying for a loan, they’ll want to know a few things.

  • How much money you have in the bank and how much you will likely make over the next 30 years  (banks or lenders do like to see a fair amount of cash in your bank account that is liquid)
  • Outstanding debt, such as money you owe for education, vehicles, credit cards, etc.
  • Assets you have, such as stocks, mutual funds, or a piece of property, including land, boats, and vehicles
  • Your credit score
  • Other debts and assets

Lenders need to know this kind of information for several, important reasons. First, they want to know if you make enough money to pay them back! Second, they want to make sure you have a history of trustworthiness. Third, they want to know if you own something valuable in the case that you are unable to pay them back. And fourth, lenders often require that you make a down payment worth at least 20% of the value of the property you intend to purchase. Many of these assessments can be facilitated if you supply the following:

  • Two most recent pay stubs from your employer
  • W-2s for the last two years
  • Last two months' bank statements
  • Long-term debt information (credit cards, child support, auto loans, installment debt, etc.)

It’s wise to show proof that you pay your bills on time and what you perceive your expected earnings to be. Actually, this is required from most banks and lenders. The former can be provided if you print out billing statements from the your bank account online, or furnish check stubs from your empolyer or even future earnings. The latter can be supplied if your employer is willing to provide a contract of terms that outlines your expected earnings.

TIP: If need be, build your case for a lower interest rate by supplying the following: references, statements from past tenants, letters of recommendation from partners, bank statements, and whatever else you think might help.

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