Image Source: Axis Bank
You may think that a home loan is either very difficult or fairly easy to come by, dependent on your financial situation. Nothing could be further from the truth! The complexities of loans by their very nature require due diligence by the lender and research by the borrower to find a suitable lender. For some borrowers, this research is quite time-consuming and frankly, they simply do not have the extra time on their hands to conduct this research.
Lending Institutions also spend a lot of time pouring over applications and vetting candidates for loans. This opened up a market for borrowers who needed someone to conduct the research on their behalf and lenders who needed someone to do the vetting of borrowers for them, hence the mortgage broker was born.
Mortgage Brokers Are The Middlemen
As mentioned, mortgage brokers conduct all the research needed to pair up borrowers and lenders together to facilitate a lending contract or a loan. Their reward for doing this work takes shape in the form of a payment or commission. This commission is paid either by the lender, the borrower, or possibly both dependent on the way the contract is written.
Factors That Mortgage Brokers Look For With Clients
The main factor that these home loan experts look at is credit and this credit factor is expressed in terms of a score. The main score that is looked at in Australia is the Equifax score which is similar to the FICO (Fair Isaac Corporation) score in the United States. Unlike in the USA, the Equifax score is not binding across Australia.
In fact, lenders and banks in Australia all have their own version of the Equifax score. What does this mean to the borrower? You could have a lousy score with one creditor and a great score with another. Usually, mortgage brokers aggregate all of the scores into an average when determining a client’s creditworthiness.
Another factor is your income and how long you’ve been at your current job. If you have a history of bouncing from job to job, this would reflect negatively upon your loan application as it shows a history of unsteady income. Part of the mortgage broker’s job is to present your application in the best light possible to garner the most interest from lending institutions. Having a stellar job history and steady income will go a long way to help foster that light.
Sometimes you hear the word “collateral” thrown around when discussing loans, but in this case, home mortgages are pretty cut and dried as the home financed IS the collateral in these types of loans. Now we’ll look at the lending side of things and see what mortgage brokers look for in lending institutions.
Factors That Mortgage Brokers Look For With Lenders
The most obvious factor for a broker to look for with a lender is that the lender can qualify the borrower on the most favorable rate possible for the lender. This goes back to presenting the borrower’s case as best as possible to the lender with a solid income, work history, and a good credit score.
The lower the credit score, the narrower the options become to the broker when locating a suitable lender. All is not lost if the borrower has a poor credit rating as there are lending institutions that will work with a lower credit score, albeit with higher interest rates for the borrower. There are also lenders who work exclusively with these types of cases, these lenders are typically sub-prime institutions.
For some brokers, they also look for the best commission rates payable to them by the lender in conjunction with all of the other factors mentioned above. This is to compensate them for the time and effort involved in brokering a deal between the two parties. Mortgage brokers also can protect their compensation in the way of clawback clauses. These clauses kick in when a borrower refinances their loan during the initial period of the note, usually within the first two years.
As you can see, there are many factors and situations that the mortgage broker takes into effect when conducting a deal between a home buyer and a lender. If you’re in the market for a home and need financing, do your due diligence and find a reputable home loan expert to help you get the best rate!