There are many home buyers in Australia who are looking to get into home ownership for the first time. These home buyers may not be familiar with certain terminology or they may not be aware of the options they have in purchasing a home. The most pertinent barrier to home ownership is funding, how will these home buyers get the funding they need to make the purchase? Sure, there are the usual suspects to investigate such as banks, credit unions, and other financial institutions. But, what about other options that may not be readily available to the public? This is where a mortgage broker comes into play.
Mortgages – A Bustling Business
Mortgage Brokerages are firms that employ a team of mortgage brokers who specialize in getting mortgages for their clients. Visualize a stock broker from movies like “Boiler Room”, constantly making calls and trying to get the best stocks for their clients. A mortgage broker operates much the same way without the extreme intensity and pressure of stocks and bonds. The mortgage broker serves a high demand of matching clients with lending institutions to get the best deal for both parties.
The broker is a mortgage expert with relationships cultivated over many years within the finance industry. These relationships stretch from Sydney to Perth throughout a network of banks and lenders that deal with a wide range of credit scores and clients. The broker can find lenders that are not accessible through the normal channels that the public has access to. These special lenders deal with other lending institutions or through mortgage brokerages exclusively.
2008 – Crisis of Confidence in the USA
2008 brought upon the housing market crisis in the United States with many mortgage brokerages facing scrutiny over their lending practices. So-called NINJA loans were utilized in these mortgages which ultimately caused a rise in defaults. The acronym NINJA stood for No Income and No Job in relation to loan qualifications. These types of practices brought a black eye upon the trade as scrutiny spread to other locations around the world. Because of this crisis, the brokerage houses re-doubled their efforts to establish a standard of ethical lending practices to avoid the same calamity happening in the future.
Typical Process of a Mortgage Broker
A client is looking to purchase a home in Sydney and is having problems garnering financing with their bank. The client does his due diligence and goes to a reputable mortgage broker. The broker has the client fill out the proper paperwork with their financial information such as income, how long they’ve been at their job, bank statements, collateral, etc. If the client is looking for a mortgage with a co-signer, the co-signer’s requisite information is also gathered at the initial consultation. The real estate in question is also discussed and paperwork on the property gathered from either the client or the home seller which entails deeds, property tax information, and possibly home inspection paperwork done by an appraiser.
The Sydney mortgage broker then contacts a list of different lending institutions to get the best rate for the client based upon how much the mortgage will be worth and the client’s credit worthiness. Once a suitable match has been made, the broker will get the offer sheet from the lender and provide that to the client. The client can then either accept the terms or reject the terms and ask for a different lender. The broker can make their cut on the deal through a variety of ways. The broker can collect the brokerage fee (essentially, a finder’s fee) from the client once the client accepts the terms.
Another option is that the broker collects the fee from the lending institution upon final approval by the client. This last option may result in a tiny bump-up of the APR in the terms to the client to make up the difference to the lender. Yet another option to the broker is that the lending institution pays the broker a commission at final approval. This commission may be an addition to the brokerage fee that the broker collects from the client. This last scenario is most likely to happen with brokerage firms who send a large group of clients to a specific lender, establishing a solid relationship in the process.