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Although it’s easier than ever to check rates and apply for a mortgage online, more homebuyers are turning to mortgage brokers or lenders who deal exclusively with mortgages to help facilitate the process.
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The growth of the gig economy, the financial pressures of recovering from the pandemic, and a need for alternative lending solutions has driven the use of mortgage brokers and specialized lenders, encouraging buyers to look beyond the big conventional banks.
As more people with unique, often complex needs, shop for mortgages, they are seeking the personalized service a broker or a mortgage banker offers, along with customized loan products.
But why should you consider using a mortgage broker or a mortgage banker instead of applying for a mortgage with a conventional bank or credit union?
Mortgage Bankers and Brokers Have More Options
For independent contractors, freelancers, and other people showing 1099 income, a mortgage broker or banker can provide alternative loan products that may work better than a conventional mortgage. Brokers or mortgage bankers may qualify homebuyers where they wouldn’t be able to get a loan with a larger bank.
“My experience is that banks are great if you fit a certain, cookie-cutter perfect borrower,” said Larry Gardner, a Realtor for Exit Realty ALL PRO in Bay Shore, New York. “But there’s no leeway. There’s no means of getting financing if you don’t fit into their little box.”
JD Mathieu, branch manager at Nexo Mortgage in San Diego, California, said, “Every situation is different but the number of options available to brokers allow them to assist a wider range of applicants compared to [conventional banks], which usually only have their in-house programs to work with.”
He explained, “While there are general guidelines for most conventional and government loan programs, lenders may or may not add more restrictive rules called ‘overlays.’ A scenario may breeze through one lender after being declined by another.”
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Buying a Home With Freelance Income
That’s exactly what happened to John Egan, a content marketing consultant and freelance writer in Austin, Texas. He turned to a mortgage banker for help securing a mortgage after being laid off from a full-time job in the midst of the home-buying process.
“I’d had another house under contract but could not get qualified for the mortgage after being laid off and becoming a full-time freelancer. She helped me immensely in terms of qualifying under those circumstances,” he said.
Egan was able to secure a traditional 30-year mortgage with an interest rate of just over 4%. After building up home equity and a long history of freelance income, he has since refinanced at a lower rate.
The flexibility in loan programs available through brokers or mortgage bankers is key for many freelancers. “If you go to a brokerage or a mortgage banker, they have a multitude of options. They can structure the deal a lot of different ways,” Mathieu said.
Preparing for the Homebuying Process as a Freelancer
Of course, borrowers will still need to show a good credit score, no bankruptcies in their past, and an adequate down payment, which is typically 20%, said Lisa Zambelli, a loan officer with Cliffco Mortgage Bankers, Uniondale, NY, in an exclusive interview with GoBankingRates.
But a good mortgage banker can help you down this path, too. Zambelli emphasized that it’s never too early to reach out to a specialized mortgage banker who can help you prepare for the mortgage application process. “People make the mistake of going out to look at a house, and then calling us,” she said.
Instead, she said, people should call a mortgage banker first to help them prepare for the mortgage application process. While they are saving for a down payment, she said, they should be working on improving their credit, and making sure they are depositing their 1099 income into a single bank account so there’s a record of it.
“One thing I see quite often is business owners with almost no usable income,” Mathieu said. “While a tax professional’s goal is to reduce your tax burden by writing off as much as they can, that may cause you not to qualify for a loan due to a lack of reportable income. I would recommend consulting with both a tax professional and lender before filing your taxes. At the very least, ask your lender to explain to your tax preparer how self-employed income is calculated. There are certain write-offs that we are able to add back on to your income to help. Mileage and depreciation come to mind as two examples. Knowing that may help minimize your tax burden while maximizing your usable income.”
Personalized Service From Specialists Helps Buyers Stand Out
Mortgage brokers and mortgage bankers also bring something else to the equation that borrowers may not find with bigger banks: close communication and personalized service. This can help loans close faster, facilitate a lower-stress transaction, and help a buyer stand out in a highly competitive seller’s market, Gardner said.
“Buyers are competing with 15 to 20 offers per house,” he said. A mortgage banker can offer not just a pre-commitment letter, but a personal endorsement of the buyer. “The banker can get on the phone with the seller and show them how the buyer is amazing,” Gardner said.
This personal touch is why it’s so important to shop around and find a lender you can connect with. “I believe it’s important for people to not only shop around for rates and pricing, but also for a broker or banker who is the right fit. Some lenders do a better job at taking the time to explain the process, while others have more experience with certain loan programs,” Mathieu said.
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Finding a broker or banker that has the products that fit your needs, but also the level of service you expect, can make all the difference in the homebuying process.
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