Emily Southey<\/a> | 16 minute read<\/p>\n[\/et_pb_text][et_pb_post_title title=”off” author=”off” date_format=”M j” categories=”off” comments=”off” featured_image=”off” _builder_version=”4.18.0″ _module_preset=”default” custom_margin=”||32px|||” global_colors_info=”{}”][\/et_pb_post_title][et_pb_image src=”@ET-DC@eyJkeW5hbWljIjp0cnVlLCJjb250ZW50IjoicG9zdF9mZWF0dXJlZF9pbWFnZSIsInNldHRpbmdzIjp7fX0=@” align=”center” force_fullwidth=”on” _builder_version=”4.18.0″ _dynamic_attributes=”src” _module_preset=”default” border_radii=”on|32px|32px|32px|32px” global_colors_info=”{}”][\/et_pb_image][\/et_pb_column][\/et_pb_row][et_pb_row _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_text _builder_version=”4.18.0″ _module_preset=”default” text_font_size=”21px” text_line_height=”1.6em” header_2_font=”||||||||” header_2_font_size=”36px” header_2_line_height=”1.3em” header_3_font_size=”1.25rem” header_3_line_height=”1.88rem” header_4_font=”|700|||||||” header_4_font_size=”1.25rem” header_4_line_height=”1.88rem” global_colors_info=”{}”]<\/p>\n
If you\u2019re buying a home in Canada, then chances are you\u2019ve decided to take out a mortgage. But deciding to get a mortgage isn\u2019t the only decision you have to make. Where are you going to get that mortgage from? Are you going to work directly with a mortgage lender, like a bank, or go through a mortgage broker?<\/p>\n
–<\/span><\/p>\nWhat Is a Mortgage Loan?<\/h2>\n
First thing\u2019s first. Before we dive into the differences between mortgage brokers and direct lenders, we must first define a mortgage loan. A mortgage or mortgage loan is an agreement between the borrower (otherwise known as you, the homebuyer) and a mortgage lender, in which the lender agrees to loan money to the borrower so they have the funds necessary to purchase a home. Mortgage loan agreements give the lender the legal right to repossess the property if the borrower fails to meet the terms of the agreement (for example, if the borrower defaults on a mortgage payment). Generally speaking, mortgages are considered \u201csecured\u201d loans, which means the borrower promises collateral to the mortgage lender if they are unable to continue making payments. In the case of a mortgage, the collateral is usually the home. Therefore, if a borrower stops making their mortgage payments, the lender can take possession of their home through a process referred to as foreclosure.<\/p>\n
\u00a0–<\/span><\/p>\nMortgage loans are available to a wide range of homebuyers. However, mortgage terms vary depending on the personal finances of the buyer and the price of the home they wish to purchase. The better your credit score and financial standing, the more advantageous the terms of your mortgage loan will be. In contrast, if you have a low income and are trying to buy a home or have bad credit and are trying to get a mortgage, your loan may be subject to high interest rates or a traditional lender may reject your application altogether, forcing you to consider a mortgage from a subprime or private lender.<\/p>\n
–<\/span><\/p>\nQualifying for a Mortgage<\/h2>\n
Whether you choose to apply for a mortgage through a broker or directly with a lender, the first step is to get pre-approved. Mortgage pre-approval is essentially an estimation of how much mortgage you will be approved for when you officially apply, based on a number of indicators, such as your income and debt levels.\u00a0<\/p>\n
\u00a0–<\/span><\/p>\nIn order to get pre-approved for a mortgage, you will need to provide a series of documents and information proving your financial status. Documents may vary by the financial institution but typically include:<\/p>\n
\u00a0–<\/span><\/p>\n\n- <\/span>Personal identification: Mortgage lenders require proof of your identity to confirm that you are who you claim to be. A valid, government-issued ID, such as a driver\u2019s licence or Canadian passport, can be presented as proof.<\/li>\n
- <\/span>Proof of income\/employment: First and foremost, you will need to provide documents that show proof of income or employment. Documents may include a pay stub that shows your current salary or hourly rate, a letter from your employer detailing your position at the company, your salary, and how long you\u2019ve worked there, or a recent notice of assessment from the Canada Revenue Agency (CRA) if you are self-employed.\u00a0<\/li>\n
- <\/span>Proof of assets: Mortgage lenders strive to calculate a buyer\u2019s net worth, which is partially determined by your assets. So if you have major assets, such as a car, boat, or a second property like a cottage, you will need to provide proof.\u00a0<\/li>\n
- <\/span>Information about your outstanding debt or financial obligations: If you have outstanding debt or other loans like student loans, car loans, credit card balances, lines of credit, or child or spousal support, you will need to show this. Never attempt to hide information about your debt. Mortgage lenders will likely find out when reviewing your credit history and it will reflect poorly on you if you try to conceal it.<\/li>\n
- <\/span>Proof you can afford the down payment and closing costs: Mortgage lenders may also want to see proof that you can afford the closing costs, down payment, and future mortgage payments on a home. To show this, some borrowers provide bank account or investment statements.<\/li>\n<\/ul>\n
\u00a0–<\/span><\/p>\nOnce the mortgage lender has reviewed your documentation, they will either approve or deny your pre-approval application. If they approve it, they will provide you with a mortgage pre-approval letter detailing the maximum loan you may be approved for and the terms of your loan, including your interest rate. This information is crucial to homebuyers, as it helps them determine how much they can reasonably afford to spend on a home. If your application is denied, you can ask the lender for more information and work on improving your financial standing before you begin house hunting.\u00a0<\/p>\n
\u00a0–<\/span><\/p>\nPlease note that getting pre-approved for a mortgage is free of charge and there is no limit to the number of pre-approvals a homebuyer can apply for. In fact, we recommend that homebuyers apply for pre-approval with several lenders to ensure they get the best rate possible.<\/p>\n
–<\/span><\/p>\nMortgage Pre-Approval versus Mortgage Pre-Qualification<\/b><\/h3>\n
When shopping for a mortgage, homebuyers may see the terms \u201cmortgage pre-approval\u201d and \u201cmortgage pre-qualification.\u201d While they sound similar, they are not the same. It\u2019s important to understand the key differences when buying a home.\u00a0\u00a0<\/p>\n
\u00a0–<\/span><\/p>\nA mortgage pre-qualification is considered a precursor to a mortgage pre-approval. It is more casual, requires less documentation, and provides the buyer with a very rough idea of how much mortgage they will qualify for. Mortgage pre-qualifications may be conducted by phone or online and can take as little as 15 minutes.\u00a0<\/p>\n
–<\/span><\/p>\nIn contrast, mortgage pre-approval is a more involved process, one that is only worth going through if you are serious about buying a home. Mortgage pre-approvals are the result of a more thorough investigation into a buyer\u2019s financial status. A greater amount of documentation is necessary, which allows the mortgage lender to provide a far more precise estimate.<\/p>\n
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“Mortgage brokers act as a middleman between the borrower and the direct lender (that is, the bank). Mortgage brokers have existing relationships with dozens of mortgage lenders, and therefore can be useful tools for prospective buyers.”<\/b><\/h2>\n
[\/et_pb_text][\/et_pb_column][\/et_pb_row][\/et_pb_section][et_pb_section fb_built=”1″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}” da_is_popup=”off” da_exit_intent=”off” da_has_close=”on” da_alt_close=”off” da_dark_close=”off” da_not_modal=”on” da_is_singular=”off” da_with_loader=”off” da_has_shadow=”on” da_disable_devices=”off|off|off”][et_pb_row _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_text _builder_version=”4.18.0″ _module_preset=”default” text_font_size=”21px” text_line_height=”1.6em” header_2_font=”||||||||” header_2_font_size=”36px” header_2_line_height=”1.3em” header_3_font_size=”1.25rem” header_3_line_height=”1.88rem” header_4_font=”|700|||||||” header_4_font_size=”1.25rem” header_4_line_height=”1.88rem” global_colors_info=”{}”]<\/p>\n
The Difference Between Banks and Mortgage Brokers<\/h2>\n
Now that we\u2019ve got the basic terms down, like mortgage loan and mortgage pre-approval, it\u2019s time to dive into the topic of the hour: the difference between banks (mortgage lenders) and mortgage brokers.\u00a0<\/p>\n
\u00a0–<\/span><\/p>\nBanks are an example of a mortgage lender or direct lender. If a buyer chooses to apply for a mortgage through a direct lender, chances are they are applying for a mortgage with a bank. Direct lenders are the ones responsible for approving or denying your mortgage application and providing you with a loan if approved.\u00a0<\/p>\n
\u00a0–<\/span><\/p>\nIn contrast, mortgage brokers act as a middleman between the borrower and the direct lender (that is, the bank). Mortgage brokers have existing relationships with dozens of mortgage lenders, and therefore can be useful tools for prospective buyers. Mortgage brokers function independently of lenders, allowing them to put a prospective homebuyer\u2019s needs first. Further, some lenders have special relationships with brokers, in which they will only consider mortgage applications submitted through a mortgage broker.\u00a0\u00a0<\/p>\n
–\u00a0<\/span><\/p>\nContinue reading for an in-depth overview of mortgage brokers versus banks, including the pros and cons of each option.<\/p>\n
–<\/span><\/p>\nWhy Use a Mortgage Broker?<\/h2>\n
Mortgage brokers have risen in popularity in recent years. Why? A number of reasons. Disillusionment with big banks following the 2008 financial crisis mixed with the convenience and potential savings they offer has made brokers the go-to voice for homebuyers seeking mortgages.\u00a0<\/p>\n
\u00a0–<\/span><\/p>\nMortgage brokers are licensed professionals who have relationships with a diverse list of lenders. Their goal is to help borrowers find the best mortgage rate possible. To do this, mortgage brokers, who work independently of direct lenders, get to know the needs of their clients. They ask borrowers about their housing needs, financial standing, credit history, and the type of mortgage they\u2019re looking for (fixed, open, closed). From there, the mortgage broker does all the heavy lifting, contacting local mortgage lenders and negotiating on your behalf to obtain the best mortgage rate.<\/p>\n
\u00a0–<\/span><\/p>\nBeyond the convenience of having someone handle this complex and tiresome process, mortgage brokers can offer their objective expertise. Unlike banks that are trying to sell you their product, mortgage brokers work for their clients. They also have access to a large network of potential lenders, ranging from banks and credit unions to trust companies. As mentioned, they may even have access to certain lenders that cannot be accessed directly by the borrower. Ultimately, mortgage brokers are experts in all types of mortgages, not just a single bank\u2019s mortgage product. This way, they can offer their objective opinion on the best mortgage for you. They can also help you find a specialized mortgage if, due to a low income or lacklustre credit history, you are unable to secure a loan from a traditional lender.\u00a0<\/p>\n
\u00a0–<\/span><\/p>\nFinally, working with a mortgage broker can save you money, which is another reason buyers choose this route. Shopping around is crucial to finding the lowest possible mortgage rate and that\u2019s exactly what mortgage brokers help with. So if you\u2019re looking to save on mortgage interest without having to contact dozens of banks or credit unions, working with a broker might be a wise decision. Plus, working with a mortgage broker does not cost anything to the buyer. Rather, the broker receives a referral fee from the lender you ultimately choose to purchase a mortgage product from. Therefore, a broker\u2019s fee is dependent on you finding a mortgage, which means you can rest easy knowing they will try their hardest to find the right loan for you.<\/p>\n
–<\/span><\/p>\nThe Pros and Cons of Working With Mortgage Brokers<\/h2>\n
We break down the pros and cons of working with mortgage brokers below.\u00a0<\/p>\n
–<\/span><\/p>\nMortgage broker pros<\/b><\/h3>\n\n- <\/span>More options: Brokers have relationships with a wide range of lenders, from banks to credit unions. This increases your odds of finding the lowest rate, as well as better terms like prepayment privileges or more advantageous penalties.\u00a0<\/li>\n
- <\/span>Specializations: Mortgage brokers are experts at finding mortgage products for all kinds of clients, including those who cannot obtain a loan from a traditional lender. If you have bad credit or a low income, going through a mortgage broker could open up more opportunities.<\/li>\n
- <\/span>Time and money savings: A good mortgage broker will do the work for you, shopping around on your behalf in an effort to find you the best mortgage at the lowest rate.\u00a0<\/li>\n
- <\/span>Exclusive rates: Some mortgage brokers offer exclusive rates to borrowers, ones that you could only get by going through a broker.\u00a0<\/li>\n
- <\/span>Objective expertise: Mortgage brokers work independently of mortgage lenders, which means you can count on them for objective, unbiased advice.\u00a0<\/li>\n
- <\/span>No cost: Hiring and working with a mortgage broker is free of charge to the buyer. The broker gets paid by the lender when the buyer finds a mortgage. Therefore, the prospective borrower has little to lose with this business model.<\/li>\n
- <\/span>Superior customer service: Nowadays, most modern mortgage brokers offer 24\/7 customer service, allowing customers to speak with a representative over the phone or online at the drop of a hat.\u00a0<\/li>\n<\/ul>\n
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