Finally – after some research and a bit of waiting, you’re ready to invest in real estate. Now it’s time to get pre-approved so you can show realtors you’re serious about buying a property.
But where should you go first – to a bank or a mortgage broker?
A mortgage broker is an intermediary who works with multiple lenders to find the best deal for the client. Mortgage brokers have licenced professionals each province has its registry and criteria for being a certified mortgage broker.
The biggest difference between who you contact for property financing is the products they can offer. A bank’s mortgage specialist will only be able to talk to you about that bank’s lending products. A mortgage broker will guide you through the process to unlock a variety of financing options, saving you time and money.
Better access to a variety of lenders
Mortgage lenders can connect you with traditional lenders, such as a bank. Many of the largest banks sell through brokers, including T.D. Bank and Scotia Bank. Where brokers shine is connecting you with alternative lenders you may not be able to access on your own These smaller lenders often have fewer fees and cheaper rates than a big bank.
When you submit your mortgage application, the broker will shop it around to his or her contacts to find you the best interest rates, terms and conditions. The more experience a broker has in the industry, the better your chances of finding a mortgage that fits your situation.
Guidance through the financing process
A good mortgage broker wants you to choose the best product for you. With knowledge of and access to many institutions, your broker is working on your behalf. Your broker will spend time with you determining your needs to find the right fit. He or she will explain the terminology and confusing details to help you make your decision.
The mortgage specialist at a bank can also help walk you through all the details and fine print but will only be familiar with the products at that institution. One advantage of working with a bank is that the bank can help you look at your full financial picture. If you have other financial products at that institution, your mortgage specialist can place your investment in the context of your overall wealth goals.
While a trusted financial advisor is always a good person to have on your team, the person you talk to at the bank may not handle as many mortgages in a year as a broker does. A broker is dedicated solely to building relationships with lenders and working with clients. This specialized attention will help you find exactly what you need.
Improve your chances of approval
Recent rule changes around mortgages have made it harder for Canadians to obtain mortgages. The stress test uses the Bank of Canada’s posted rate, which means lenders are being approved for lower mortgages than they have been in previous years. It’s also harder for self-employed workers to qualify because of new rules about income.
Because of these rule changes, would-be buyers have less negotiating power with banks. Banks may not offer the most favourable terms and offer no recourse for applicants. If the bank rejects the application outright, the applicant has to start over again with another lender.
Mortgage brokers are great for buyers who have unusual circumstances or less-than-stellar credit. The broker knows which lenders are most likely to have products that fit the client’s needs. Your situation isn’t one-size-fits-all, so working beyond the bank helps you find the right product.
Flexibility saves you time and money
Mortgage brokers either work alone or as part of a larger broker network. Because of this, they aren’t confined to a bank’s business hours and are available to meet at times that fit your schedule. No need to take time off or wait until Monday morning to move quickly on a property.
You generally don’t have to pay a mortgage broker. Instead, lenders pay mortgage brokers a commission for connecting them with buyers. Some brokers may push certain products on you because the lender is offering a better commission, which is why it’s important to research your broker first.
Mortgage brokers function as mortgage wholesalers on behalf of the lenders, providing you with the best rates available. Your mortgage broker should detail the breakdown of the total costs for the loan, as well as how the broker is paid for services.
When you work with a mortgage broker, you only need to submit one application. If you decided to shop around with multiple lenders on your own, you’d need to complete a separate application each time. With a large purchase like property, it’s important to compare options before committing to financing. A mortgage broker streamlines that comparison process.
Finding the right mortgage broker
Working with a mortgage broker is an easy way to find the best rates at your convenience. But just because mortgage brokers have access to the best deals doesn’t mean you’ll always get the best service.
When searching for a broker, ask your network for recommendations. A positive review from a friend is worth a lot in finding someone you can trust with your financial future. Avoid brokers who are only pushing one product, or who are trying to make you commit too early. The best mortgage brokers are transparent and committed to helping you understand the process.
It’s important to interview a prospective broker before using his or her services. When interviewing mortgage brokers, ask the following questions:
- How does the application process work?
- What experience do you have?
- What type of loan is best for my situation?
- What costs can I expect?
When it’s time to start shopping for mortgages for your next property, you may find that a mortgage broker will snag you a better deal than you’d find at a traditional institution.
LendCity Mortgages is our Recommendation
LendCity Mortgages was designed for investors. LendCity Mortgages is a sister company of Canadian Real Estate Network. They have created a road map for investors to allow unlimited rental property purchases, refinances and ports - with all A lenders. To contact LendCity mortgages click the link here.