Transaction Middleman

 

When you decide to buy a home and you are shopping for a mortgage by yourself, you might encounter a lot of difficulties not normal for a newcomer. A Denver mortgage broker makes things less tough by connecting homebuyers with appropriate loans, preparing application materials and guiding the borrower-buyer through the whole process.

They also have access to a much wider range of mortgage products. This means borrowers can get more favorable interest rates. They are especially helpful to first-time homebuyers who need the extra support.

The work

Denver mortgage broker are licensed and regulated financial professionals who work as intermediaries between borrowers and lenders. They identify loans that are fit for the needs of the borrowers and compare these rates and terms so that the borrower does not do them.

They can offer mortgage products from their network of lenders. They provide access to a greater range of products compared to loan officers in banks who are limited to the offerings of their own banks.

Guidance

Throughout the process, Denver mortgage broker guide their clients (borrowers) through the application and underwriting procedures. They compile the application materials, collating the borrower’s credit and verifying income and employment information.

Finally, a broker works with everyone who is also working in the transaction (real estate agents, underwriters, and closing agents) in order that the loan closes on time.

Some benefits

A mortgage broker who works with multiple lenders can help borrowers identify the best loans and rates from a broad range of loan programs more than a mortgage banker.

A mortgage broker can help a borrower save a huge amount of time. Borrowers tend to call several lenders individually and try to work over complicated loan offers.

With a broker, a borrower simply works with him to determine how much loan the borrower is likely to qualify for. The broker will then handle all the legwork.

Costs

Mortgage brokers are paid in two basic ways: through fees paid by borrowers or by way of commissions paid by lenders. The amount of fees and commissions are variable, but brokers can earn up to 2.75% of the total loan amount, depending on who is paying.

 Borrower fees are those paid by the borrower typically range from 1% to 2% of the total loan amount. They can be paid as a lump sum at closing. However, they are sometimes rolled into the total loan amount or they are otherwise incorporated into loan fees.

Lender commissions

Lender commissions, ranging from 0.50% to 2.75% of the total loan amount, are paid by the lender after closing. Not many people know that when lenders pay commissions to the brokers, they typically pass these costs on to borrowers by building them into the cost of the loan.

This is why it’s important to discuss the fee structure with the potential broker before applying for the loan.

Brokers help the homebuyer compile the necessary documentation and shepherd them through the application and underwriting process. During closing, the mortgage broker earns a borrower fee or lender commission of between 0.50% and 2.75% of the total loan amount. —this is the broker’s fee structure and is dependent on whoever is paying them, the lender or the borrower.

Variables in Mortgage Rates

 

Basically, a mortgage rate is the rate of interest charged in a mortgage transaction. These rates are determined by a lender.

These can be classified as either fixed rates which stays the same for the term of the mortgage, or variable which fluctuates with a benchmark interest rate. Potential homebuyers can also estimate the mortgage rates by looking at the prime rate and the 10-year Treasury bond yield.

These rates also vary from borrower to borrower based on their credit profiles. The averages for these mortgage rates rise and fall with the interest rate cycles which can drastically affect the homebuyers market.

Understanding the rates

For homebuyers looking to purchase a new home using a mortgage loan, the mortgage rates are the top factor being considered. There are other factors being involved in the decision to buy. This includes collateral, principal, interest, taxes, and insurance.

In the transaction, the house is the collateral and the principal is the initial amount of the loan. The taxes and the insurance are usually estimated amount figures since they vary according to the location of the property at the time of purchase.

Indicators

There are some indicators that potential homebuyers can check on when considering a mortgage loan. The prime rate is one. It represents the lowest average rate banks are offering for credit.

Prime rates are used by banks in their interbank lending. However, they also offer prime rates to their quality borrowers with the highest credit. Prime rates typically follow the trends in the Federal Reserve’s federal funds rate which is usually around 3% higher than the current federal funds rate.

Treasury bonds

The 10-year Treasury bond yield is another indicator for borrowers. This yield also helps in showing market trends as well. If the yield rises, the mortgage rates rise as well. If the bond yield drops, mortgage rates will also drop.

Another excellent indicator also involves the 10-year Treasury bond. The connection is that most mortgages are either paid off or refinanced for a new rate after 10 years, even if most mortgages are listed for 30 years.

Deciding the mortgage rate

The lender actually absorbs a level of risk during the issuance of a mortgage. There is always the possibility that the customer might default on his loan.

There are factors that help in determining the mortgage rates. They follow an old rule that the higher the risk, the higher the rate. For lenders, a high rate ensures that they recoup the initial loan amount at a faster rate in case the borrower defaults, and protecting the initial investment of the lender.

Another key component in the assessment on the rate charged on a mortgage is the borrower’s credit score and the size of the mortgage loan he can get. A higher credit score indicates a borrower is more likely to repay because he has a good financial history.

The lender allows the lowering of the mortgage rate because the risk of default is lower. The charged rate ultimately determines the overall costs of the mortgage and the amount of the monthly payment.