Broker v Bank: which is right for you?
When it’s time to prepare for buying property, the best place to start is to establish your budget.
There are two parts to this; what you can comfortably afford to pay to hold the property, and the amount of money you’ve been approved to borrow. Last week I outlined the former and today we’ll look at the latter and compare going to a broker versus going direct to a bank.
Your home loan repayments are likely going to form a substantial part of your daily expenses. Having a mortgage is the price you pay for getting a foothold on the property ladder and giving it some attention at the very beginning will help you establish the right loan product for you and minimise the cost of borrowing. Your future self will thank you for it later!
So where to look? How do you find a good broker, or is it better to deal directly with a bank? As someone who deals with both brokers and banking staff on a daily basis, there’s a few differences to be aware of when you’re looking for finance.
Choice of lenders
Banks will only be able to offer their loan products. Going directly to the bank means you are choosing only from their range of products. If they don’t offer these through a lender (some online-only, low cost lenders fall into this category) then dealing direct is the only way to obtain their loan product.
Brokers have a panel of lenders from which to choose. Not all lenders are available at all brokers however, so don’t assume that going to a broker will automatically mean that you get the best possible product for you. Check to see how many different lenders they have access to. Brokers also deal with each lender’s representative known as the Business Development Manager (BDM). Through these BDM’s, the broker can escalate issues, clarify non-standard applications and generally give context to your loan.
Programs
Banks train their own staff on their in-house processes and they deal with their own internal software. They’re able to help you calculate borrowing capacity, loan repayments and model different scenarios but only on their own loan products. They often know their own product inside-out and can be very helpful when you need to discuss your circumstances, such as changing your repayments.
Brokers can compare different loan products across their panel of lenders to show you how each option compares. This can be quite helpful and save you time by comparing apples with apples, rather than trying to figure out comparison rates and ongoing costs across many different lenders. Also, their software can quickly determine when one lender will approve you to borrow a higher amount than another, which can have a significant impact on the property and the area that you end up buying into. When lending policies are changed (which happens frequently, if 2019 is anything to go by!) then your capacity can change overnight. Speaking from experience, this gives you the choice to buy into a more expensive area and can open up a range of options that would otherwise have been beyond budget under another lender. A broker’s software can compare your options across a range of lenders, saving you time and energy.
Non-standard situations
Banks easily accommodate the ‘standard’ loan applications. If you’ve got a long history of PAYG income, an excellent credit record and are borrowing a low percentage of the property’s value, banks can really easily deal with these. Once you start to raise red flags with them, you may find that the answer becomes a ‘No’ or ‘We need a week to look into this before we can give you an answer’. It may be bank’s own lending policy that doesn’t permit lending to self-employed people, those on probation at work, or a poor credit history. It all comes down to who you’re dealing with. Staff are given varying levels of training, they may be new to the industry or have decades of experience – your outcome often depends on who you’re dealing with and their skillset.
Brokers are able to recognise which lender would be the best fit for any non-standard loan applicants. As soon as your situation, or the property that you’re buying, steps outside the mould then an experienced broker will be able to guide you to the options available to you. Some lenders restrict the number of loans they’ll offer in a certain postcode to minimise their exposure (aka risk), so it’s not always your own situation that can change things.
Ongoing relationship
If you’re looking to create mortgage strategy to pay down debt faster, acquire more properties over time, or want to take the most direct path to a debt-free existence then finding someone with the skill set to give you strategic advice is worth the initial time and effort to find them. Ask your trusted peers for their recommendations, or for brokers check out the top in their industry: https://www.yourmortgage.com.au/mortgage-brokers/best-mortgage-brokers/
It all boils down to the person you deal with. Their willingness to keep abreast of the ever-changing policy environment, listen to your needs and make personalised recommendations to put your best interests first is what to look for. Ask to speak to some of their clients and find out how they operate when things go pear shaped. Look for experienced operators who can resolve problems quickly and are keen to build an ongoing relationship with you.
Happy house-hunting!
Claire