Mortgage brokers and first home buyers: what help is available?

If you’re thinking about purchasing a first home, you may be wondering what a mortgage broker does, and if they can assist you with the process.

There’s a lot of information to get your head around when buying your first home, and if you need help navigating the complexities of the application process, a mortgage broker might be able to help. But, there are some things you’ll want to keep in mind.

What does a mortgage broker do?

A mortgage broker is someone whose job is to help you obtain a home loan or a mortgage from a list of financial institutions that broker works with. There are a variety of home loan lenders on the market, and a mortgage broker acts as an intermediary between you and them, typically consulting with a panel of specific lenders to find a deal that will work for you. In general terms, a mortgage broker might:

• conduct an assessment of your requirements and financial position
• inform you of the home loan options available to you on the market, from the lenders they deal with
• use your information to assess what home loans may be in your best interests
• potentially suggest one or more options or recommendations to consider in your best interests
• assist you in gathering the paperwork you’ll require to apply for the loan
• support you throughout the application and settlement process.

Is it easier to get a mortgage through a mortgage broker?

Using a mortgage broker when purchasing your first home may help make the process easier than doing it yourself, but this will depend. A mortgage broker is an expert who understands the complexities of the home loan application process, and may be able to guide you through it, explaining the interest rates, fees and features of a loan. They will likely also be able to assist you in explaining the exact paperwork you will need for your application – this typically includes information such as bank statements, payslips and lists of your daily living expenses. In addition to this, a mortgage broker will typically have access to a variety of home loans, from a panel of different lenders. This means that they will likely have knowledge of a broad spectrum of the home loan market, and may be able to suggest a home loan that can meet the needs of a first home buyer.

Keep in mind though that a mortgage broker will have limits with the lenders on their database, and their panel of lenders may be large, but it will not include every lender on the home loan market. It is also worth remembering that you are free to shop around and meet with more than one mortgage broker, to get a sense of how good a deal they might be able to offer you. How ‘easy’ you find it to get approved could also depend on factors such as your credit score and borrowing capacity. There are other options first home buyers can consider, such as dealing directly with a bank or financial institution, or even an award-winning provider. You may also like to compare home loans with Canstar.

Compare home loans

Do home buyers pay mortgage brokers?

According to ASIC’s review of mortgage broker remuneration, brokers commonly do not charge a fee directly to consumers, and generally do not earn a commission from their employers. This means that the way mortgage brokers most commonly earn money is by receiving commissions from lenders. There are four main types of commissions that are typically earned by brokers:

1. Upfront commissions, which are paid by the lender when a customer takes out a loan.
2. Trail commissions, which are paid by the lender each month while the loan is active.
3. Volume and non-volume bonus commissions, which are paid out by lenders if brokers meet certain criteria.
4. ‘Soft dollar’ or non-monetary benefits, which can include perks like free conference attendances and overseas trips.

ASIC warns that this commission-based structure has the potential to create a conflict of interest between the consumer and the broker, in so far as commissions, bonuses and ‘soft dollar’ benefits can provide an incentive for a broker to favour a certain lender or lenders.

Do first time buyers need a mortgage adviser?

You do not need a mortgage broker to purchase a first home. You can compare the available home loans on the market yourself, and apply to the bank or lender who best suits your needs, or who offers the loan that you believe to be the most suitable for you. A mortgage broker is merely one option that you can take up, if you wish to have someone who can simplify the application process for you, and steer you towards a lender who could meet your needs. This may be useful, especially for first-time buyers who have never navigated the home loan market before.

What questions should a first time home buyer ask a mortgage broker?

Questions that first time home buyers should ask a mortgage broker include:

• What type of interest rate is best for you? Depending on your needs and circumstances, a broker may recommend a fixed or variable rate loan, or a split rate loan, combining the two.
• What fees, charges and borrowing costs are attached to the loan? Home loans can come with upfront and ongoing fees, so it is worthwhile to ask your broker to explain all of them in detail, to make sure you understand what you will be paying for. There can also be borrowing costs such as loan application fees, property valuation fees and even lenders mortgage insurance. It is important to understand exactly what costs you’ll be up for when signing up for a home loan.
• What is the comparison rate of the home loan? A home loan comparison rate is a measure of the true cost of a loan, when the interest repayments and fees are combined. It is important to be aware of the comparison rate, as a loan with a lower interest rate may end up being more expensive when fees and charges are factored in.
• How big is the panel of lenders? Brokers will typically work with a set panel of lenders, meaning they will not scout the entire home loan market. It could be helpful to choose a broker with  a large panel to choose from – more lenders can mean a greater selection of home loans to consider.
• What information will you need for your home loan application? A mortgage broker should be able to tell you exactly what kind of documentation you will need when it comes time to apply for a loan, to make sure you have it all in order.
• Are they licensed? Industry bodies representing mortgage brokers, such as the Finance Brokers Association of Australia Limited (FBAA) and the Mortgage & Finance Association of Australia (MFAA) may be able to assist you with finding an accredited broker. You could ask a broker to give you details about their licenses, or do an online check.
• What are their fees and commissions? It may be worth enquiring how much a financial institution will pay your mortgage broker for referring your business to them, and whether this will be an upfront or ongoing commission, as well as whether any bonuses are attached.

Consider the pros and cons before booking an appointment, and check the broker you choose has the qualifications and experience necessary to provide you with quality advice and support.

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