When you're ready to buy your first home, one of the first steps you might consider is seeing a mortgage broker. But what exactly happens when you meet a mortgage broker for the first time? And what should you expect from the process? In this Get Rich Slow Club episode, we're exploring what it's like meeting a mortgage broker for the first time, how they can help you, and what to look out for.

A mortgage broker helps you navigate the often complicated world of home loans by comparing different lenders and guiding you through the borrowing process. As Kobe Clarke-Jacobs, a Melbourne-based mortgage broker, explains, brokers can help first-time buyers and family home buyers make finance fun, simple, and accessible.

Mortgage brokers don't just find loans; they consider your individual financial situation and future plans, ensuring that the loan suits both your immediate needs and long-term goals.

Here’s what you can expect at your first meeting and beyond.

The first step: discovery call and information gathering

The onboarding process can look different with each broker. But if they’re anything like Kobe, you’ll be asked to fill out a contact form or questionnaire before your meeting. This gives the broker an idea of where you are in your property-buying journey and what kind of loan you might be looking for.

Once that information is gathered, you’ll have a discovery call with the broker. This is where the conversation gets detailed.

"We talk about income, debts like consumer debts and student loans, future plans, and even things like whether this will be a two-year property or a ten-year property," says Kobe.

For first-time buyers, the conversation might also cover the various government schemes and grants that could help make the process more affordable.

Preparing for your first meeting

Before your first face-to-face (or Zoom) meeting with a mortgage broker, make sure you gather some key documents. According to Kobe, these typically include:

• Identification documents (e.g., driver's license, passport)
• Pay slips from your job
• A fact-find document, which lists your assets, liabilities, and monthly expenses
• Bank statements to show proof of savings (some lenders will accept lump sums, while others won’t. Others still will take previous rental payments as proof of genuine savings)

The purpose of this documentation is to help the broker work out your borrowing capacity, i.e. how much you can reasonably borrow to purchase a home. In Kobe's experience, this is a critical step.

"I go quite in-depth and do multiple lenders and give them quite a range because every lender is so different.”

The lowdown on fees

Most mortgage brokers don’t charge a direct fee to their clients. Instead, they earn a commission from the lender once the home loan is settled. As Kobe explains, this commission typically ranges between 0.6% and 0.7% of the loan amount, depending on the bank. In addition to this, brokers often receive a "trail" commission, which is paid monthly and based on the remaining loan balance.

It’s important to note that if a borrower refinances or exits the loan within a certain period, brokers may face a "clawback." This is where they are required to return part or all of the commission they received.

Discussing your options and borrowing capacity

One of the most valuable services a mortgage broker provides is helping you understand how much you can borrow and the associated costs. Kobe explains that it’s not just about the loan; it’s also about understanding purchase costs, such as:

• Conveyancing fees
• Mortgage registration fees
• Insurance (building and contents)
• Utility and council rates
• Strata/body corporate fees

These costs can add up, so it’s important to be aware of them before committing to a loan. For example, if you're buying a $500,000 property with a 5% home deposit , your loan-to-value ratio (LVR) will be 95%. This means you'll need to be aware of additional costs such as lenders mortgage insurance (LMI) if you’re not using a government scheme, like the First Home Guarantee .

Kobe also stresses that just because a bank will lend you a certain amount doesn't mean you should take it all.

"If you're looking at repayments and how that fits with your lifestyle, then comparing it to what you're paying currently in rent, it's a huge difference,” she says.

“If you want to keep saving, have an emergency fund, and do anything besides eat beans on toast at home, don't borrow the full amount.”

Government schemes and grants

For first-time home buyers, there are several government schemes available, such as the aforementioned First Home Guarantee. This allows you to enter the property market with as little as a 5% deposit.

As Kobe explains, "The scheme lets you access interest rates as if you were purchasing with a 20% deposit, with the government paying the lenders mortgage insurance."

However, Kobe also stresses the importance of understanding your financial position before entering one of these schemes.

"People think: ‘Great, I've got 5%,’ but they actually need to have the income to support it too,” she says.

The role of offset accounts and redraw facilities

If you’ve spent any time researching home loans, you may have come across terms like "offset accounts" and "redraw facilities." These tools can help reduce the amount of interest you pay over time, but they can also be confusing.

An offset account is a transaction account linked to your mortgage. The money in the account offsets the amount of interest you pay. For example, if you have a $500,000 loan and $10,000 in your offset account, you’re only paying interest on $490,000. Kobe explains that offset accounts are "really good tools for money management" because interest is calculated daily and charged monthly, meaning every bit of savings helps reduce your interest bill.

However, some people prefer redraw facilities, which allow you to pay extra money toward your loan but access it later if you need it. While both options have their benefits, it’s essential to discuss which one works best for you with your broker.

Pre-approval: Getting a head start on the market

Once you and your broker have worked out your borrowing capacity and you’ve submitted the necessary documents, the next step is getting home loan pre-approval from a lender. Pre-approval gives you an idea of how much a bank is willing to lend you, which can make your property search more straightforward.

While pre-approval isn’t a guarantee of a loan, it does make the home-buying process smoother. As Kobe says, “You don't have to. I just recommend doing it, especially with [the market] being so competitive as well at the moment. You want to be able to think: ‘Hey, I'm actually allowed to.’”

The settlement process: What happens next?

After you’ve sorted out your pre-approval, your broker will introduce you to the conveyancer to start the home-buying journey. This is where Kobe enjoys staying involved: "I like clients to send me the properties they're interested in. I just love looking at houses."

Once you’ve found a property and submitted a successful offer, your broker works to finalise the settlement. You might find it to be a bit anticlimactic, says Kobe: “All my money's going to this purchase today, and then they're like: ‘Okay, cool.’”

The bottom line: mortgage brokers are your partners in the process

Working with a mortgage broker for the first time might feel daunting, but with the right person, it can be an empowering experience. Brokers like Kobe help demystify the process and ensure you're making informed decisions at every step.

"It's about finding someone who genuinely cares about your journey and wants the best for you," Kobe says.

If this episode sparked something in you, give it a five-star rating, drop a review, or better yet, share it with a friend. And if you're just starting out, the first ten episodes will get the financial gears turning.

Happy investing!