Buying a house, condo, or acreage is a big investment and most first-time Buyers will likely need some type of mortgage assistance to finalize their purchase. Hiring a good mortgage broker can be almost as important as selecting a good REALTOR®. Below are ten important groups of factors to consider and analyze (along with questions you should ask) when selecting a good mortgage broker:
(1). How available will the mortgage broker be for you? Is your call returned as soon as possible or will you sometimes have to wait a day or several days for an important response? Does the mortgage broker have another broker available when they are away on holidays or sick leave? Good mortgage brokers usually find ways to be available to their clients regardless of their personal or calendar circumstances.
(2). Does the mortgage broker have a pager number to return calls that are made in the evening or weekend or are they only available normal work hours Monday to Friday 9 AM to 5 PM excluding lunch hours and holidays? In real estate, time is of the essence and mortgage issues do not disappear simply because it happens to be an evening, lunch hour, a weekend, or a holiday.
(3). Does the mortgage broker include financing prequalification as part of their services? It is important for Buyers to get prequalified by their mortgage broker immediately from the start to ensure no time, effort, or expense is unnecessarily wasted with viewing homes or writing offers only to find out that you cannot proceed with removing a financing condition. Once you have been successfully pre-qualified, contact your REALTOR® to advise the price range you will be considering for your new home. To avoid disappointment, it is advised that Buyers not view homes or make any offers for amounts that exceed the highest maximum amount indicated by their selected mortgage broker. Buyers must also make sure to ask the mortgage broker what are the conditions and constraints to financing prequalification to ensure the Buyer’s bank account levels, job situation, and current level of credit and debts remain relatively constant so as not to jeopardize formal approval or transfering of the mortgage funds by the lender upon turnover.
(4). Is the mortgage broker stepping up their level of customer service by being willing to make a house call to meet with you? Many customers appreciate the value of a mortgage broker who will come out for a meeting (with the confidentiality and security of being in your own home) as opposed to making an appointment and driving long distances to meet at often inconvenient times, locations, or weather conditions.
(5). Does the mortgage broker primarily specialize in residential (or commercial) mortgages and does the mortgage broker have the proper levels of education, experience, licensing, and expertise to handle complex mortgage issues? Asking the level of financing education; number of years of experience; review copy of a license; and / or details on size and diversity of client base may help to answer this question if you do not know someone who has worked in the past with this mortgage broker. You may also want to ask the mortgage broker for any past client testimonials or referrals they may be willing to provide to help strengthen your decision. This is important because a good mortgage broker will be able to provide you good mortgage advice as it relates to the type of mortgage that may work best for you; how long to lock in for; how to improve your interest rate and payments; etc.
(6). Does the mortgage broker have relationships with multiple lenders in efforts to get you (as their client) the best interest rate? Interest rates are important because a few percentage points one way or the other can make the difference of up to tens of thousands of dollars over the amortization term of your mortgage. To explain this differently, let us assume two Buyers with equal financial capability and background are able to pay a maximum of $1660.42 per month and want to buy a house. Mortgage Broker ‘A’ (shopping three lending institutions) approves Buyer #1 at an interest rate of 4.5%, 25-year amortization for a value of $400,000. Mortgage Broker ‘B’ (going to only one lending institution) approves Buyer #2 at an interest rate of 5.5%, 25-year amortization for a value of only $362,700. This means that Buyer ‘B’, paying the same monthly interest rate as equal Buyer ‘A’, is only approved for $362,700 while Buyer ‘A’ can afford a more expensive house at $400,000. In real estate terms, this huge $38,300 disparity in money being paid for interest instead of principal (without Buyer ‘A’ paying a dime more than Buyer ‘B’ over the mortgage term for monthly payments that remains $1660.42 for both Buyers) can be the difference of a basement being finished; a double garage; lot size; several condition upgrades; location differences; and / or house size with a more expensive home possibly also having the upside of higher resale potential in a future market. Other factors affecting pre-approval include but are not limited to the level of risk one lender is willing to take vs. another lender for a Buyer with a specific portfolio; financial capability; financing background; and / or financial strength including these factors as they relate to buying partners or co-signers.
(7). Does the mortgage broker have quick access to lender-approved certified appraisers and are appraisals included in your mortgage? Ensuring your mortgage broker has ‘many appraisers at his or her fingertips’ to schedule appraisals on short notice will help ensure you will not lose your next home simply because an appraisal could not be scheduled in time and the Seller was unwilling to provide a financing condition extension. It is advised that a current and satisfactory bank-approved appraisal be in place (as advised by the Buyer’s selected mortgage broker) before Buyers decide to remove a financing condition. To protect against the risk of an unsatisfactory bank appraisal, ask your REALTOR® about comparable past sales to make sure the purchase price is in range with the current market for the area. Do not ever presume that a financing extension will be forthcoming as this is solely the Seller’s final decision. Finally, Buyers are advised not to remove a financing condition until they have received formal approval from their mortgage broker because when the turnover comes, the Buyer will be legally responsible for coming up with total purchase amount on time regardless what problems they may be experiencing with a lender coming up with the mortgage money portion.
(8). Can the mortgage broker adequately explain to you the following: (a). The procedures that will be used to calculate your mortgage payment that will be owing every month; (b). The positives and negatives between fixed vs. variable rate mortgages; (c). What happens after the first interest rate reset (i.e. once the term expires)?; (d). Are there any limits as to how high your monthly payments can become after the first term expires?; (e). What are the payout penalties if you pay off your mortgage sooner than you expect?; (f). Are there any other financial risks or consequences for mortgages where a spouse, family member, or other investor is involved as a co-signer?; (g). How long is the financing pre-qualification (e.g. holding a low interest rate constant) valid for before it must be renewed?; (h). What amortization (i.e. years of the mortgage) does the mortgage broker recommend for your individual situation and why?; etc.
(9). Is the mortgage broker experienced and positioned to obtain financing approval ASAP for you (e.g. within a week)? Speak with your REALTOR® about inserting a financing condition on your offer to purchase with a deadline the Seller is willing to accept that works for your mortgage broker. A financing condition is important although some exceptions can apply with risk assumed by the Buyer for cases of highly experienced Buyers with strong financial strength and / or somewhat or marginally lesser experience combined with financial strength in the cases of competing multiple offers or desired negotiating leverage; and the Buyer has been reassured with very near certainty from their mortgage broker of financing approval with backup plans in place if for whatever reason the financing is rejected. Do not presume that financing condition deadlines can be extended just because a mortgage broker was late in ordering the appraisal because not all Sellers are willing to give Buyers a break particularly in cases where a Seller regrets a pending contract to a Buyer in which the Buyer was getting a ‘great price’ or in cases where a stronger backup offer is set to take effect after the initial deadline. The onus is on the Buyer to stay on top of their mortgage broker at all times prior to approval to ensure the financing condition deadline is successfully met by the mortgage broker, and if not, to then hold the mortgage broker accountable.
(10). Will the mortgage broker continue to be available to provide additional mortgage advice years after the property has been turned over? Good mortgage brokers understand that good customer appreciation and service is a long-term commitment and Buyers should attribute worth towards those mortgage brokers who take pride in continuing to provide advice and follow-up years after a mortgage has been signed off and the property has been turned over.
In summary, it is a big responsibility for Buyers to select the best mortgage broker available - do not underestimate the value of this service by carefully evaluating and selecting your best option. If you do not know of a good mortgage broker, ask your REALTOR® to provide a referral list of mortgage brokers that have been known to demonstrate good availability, promptness, attention to detail, and good general knowledge and understanding of the mortgage industry. Selecting a good mortgage broker will help ensure your next home purchase will be a positive experience.
[Article written and ©2009 by Kelly Grant, M.Eng., ABR, NCSO, P.Eng. - REALTOR® at Maxwell Devonshire Realty in Edmonton, AB]
Disclaimer: for those readers not currently represented by another licensed REALTOR®, to obtain more information on this topic and / or if you are serious about selling or buying in the Greater Edmonton Area, call Kelly at 780-414-6100 (pager) or send Kelly an email to SOLD@KellyGrant.ca to schedule a confidential appointment.