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What Is A Mortgage Broker?: What To Know Before Using One

Shopping for a mortgage is one of the most challenging and arduous parts of purchasing your home. During this process, most home buyers seek expert mortgage brokers to help them pinpoint the best and most practical terms, rates, and pricing structures.

On top of that, mortgage brokers help simplify the process by preparing proper application materials and guiding you, aka the borrower, through closing. In addition, unlike loan officers, mortgage brokers boast access to an array of mortgage products.

However, since the devastating real estate market crash in 2008, brokers’ business practices have been under close inspection. Plus, it raised the question of whether mortgage brokers act in the best interest of the customer.

Luckily, working with a mortgage broker boasting expertise and experience can help you score the ideal mortgage. However, there are certain advantages and drawbacks of working with one. Let’s discuss in-depth who mortgage brokers are and what they do:

What is a Mortgage Broker?

Mortgage brokers refer to licensed, regulated, and well-trained financial professionals. They connect borrowers with lenders and often originate loans.

However, keep in mind that mortgage brokers neither close nor fund mortgages. Instead, they help you find the ideal lender who caters to your home buying needs.

How Do Mortgage Brokers Make Money?

More often than not, the mortgage broker is paid by the lender. The mortgage broker will receive a commission for the loan that closes. This commission is usually a flat rate, typically 1-2% of the loan's value. For example, if the borrower is approved to borrow $300,000, and the loan is finalized, the broker will receive between $3,000 and $6,000 for their services.

There are laws and regulations that influence just how much a broker may charge.

How Does A Mortgage Broker Work?

Mortgage brokers offer their services alongside real estate agents, lenders, underwriters, attorneys, and title companies, during the purchasing process.

Unlike mortgage bankers, mortgage brokers provide complete access to various loans from a wide range of lenders.

Mortgage Broker vs. Loan Officer

If you’re new to the mortgage world, you may find it difficult to differentiate between these two terms. Here’s the easy-to-understand definition of both terms:

Loan Officers: Refers to employees of a specific lender who receives a pre-set salary and sometimes a commision based on the amount of the loan offered. Loan officers may write loans once the lender chooses to offer them.

Mortgage Brokers: Refers to individuals who can choose to work within a firm or independently. Mortgage brokers boast the ability to provide borrowers access to a broader range of loan choices.

Should You Use a Mortgage Broker?

A professional and well-versed mortgage broker can help borrowers save time as well as money. However, there are also specific cons of hiring a broker. Here we discuss whether you should hire a mortgage broker to assist you in your home purchasing journey or not:

The Benefits of Hiring a Mortgage Broker

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The Pros

These include:

Access to Different Lenders

Mortgage experts will provide you easy access to a variety of lenders, loan types, and rates that you may not have access to if you apply directly to a conventional bank.

Keeps All Your Paperwork For You

With mortgage brokers, you can rest assured underwriting is always up-to-date. Plus, you can trust them to manage all the essential paperwork and share valuable information across different parties.

Should You Hire a Mortgage Broker or Go Directly to a Bank?

Choosing between a lender and mortgage broker can be a difficult task. Simplify the process and make the right decision by asking yourself whether you are willing to dedicate time to finding home loans. If the answer is no, then consider paying someone to take care of your legwork.

Here’s an easy-to-follow checklist to help you figure out who you should choose:

Consider a Direct Lender if:
  • You don’t wish to pay the costs of hiring a mortgage broker
  • You’re confident in your skills of finding a quality lender
  • You boast a loan with a straightforward transaction
Consider a Mortgage Broker if:
  • You need someone else’s help in finding you an expert lender
  • You have a low credit score
  • You’re struggling with loan application challenges, and you believe that a qualified broker can easily find a lender who will cooperate with you

Finding the Right Mortgage Broker

Shopping around and assessing the real estate market is the best way to find a broker who is qualified with in-depth industry knowledge.

In this way, you can rest assured they have all the knowledge for helping you find a loan that matches your financial abilities and needs. Here’s how you can find a good mortgage broker:

Ask for Referrals

Start by requesting your friends, family members, and seasoned real estate agents to offer referrals. You may even contact people who recently purchased a home and seek reviews.

Vet Your Options

While reading the reviews of a mortgage broker, make sure you evaluate the broker’s skills and reputation rather than their company.

Try to find third-party reviews of your mortgage broker to understand better how your desired broker treats clients and what his or her service offers. You can easily find third-party reviews on sites like Yelp, Amazon, and Facebook.

Interview Mortgage Brokers

Interviewing with a mortgage broker helps you find the perfect mix of personality, communication skills, professionalism, expertise, and trust. It also enables you to understand the quality of their service.

For this reason, homeowners should look beyond rates alone and quick closings and look for brokers who also connect with you.

To Sum It Up

Mortgage brokers play an integral and active role in the mortgage market, offering customers a unique service unavailable by large banks, credit unions, and other entities, regardless of fluctuations in the real estate market.

A qualified realtor will help you get access to an exhaustive list of recommended and leading mortgage lenders. Keep in mind that your mortgage broker will receive a small percentage of 1 to 2% as a fee for each loan amount.

 

Find a Mortgage Broker Today!

All material is presented for informational and educational purposes only and should not be construed as individual financial, investment, or legal advice or instruction. ZeroMortgage does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by ZeroMortgage. ZeroMortgage, its affiliates, and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action. ZeroMortgage does not provide tax advice. Please contact your tax adviser for any tax related questions.

This page last updated: March 21, 2022