There are many moving parts and various people you’ll deal with throughout the process of purchasing a home. Depending on how you decide to find your lender, one of the professionals you might end up working with is known as a mortgage broker.
In this article, we’ll break down what a mortgage broker does and how working with one may help you in your search for the perfect home loan. Let’s start by defining mortgage brokers and explaining what they do.
What is a Mortgage Broker?
A mortgage broker is a professional who helps homebuyers find a mortgage lender to hire and help them finance their homes. The mortgage broker does not provide the loan itself, but instead, the broker works as a kind of middleman. Mortgage brokers bring the two parties together and look for loan options that will fit the buyer’s financial needs.
What Does a Mortgage Broker Do?
If you work with a mortgage broker as a way of finding a mortgage lender, they will start the process by looking over your financial information. This will allow them to understand how much you can afford to spend on a house and what type of loan will be the best fit for you.
This is similar to the process that you would go through with a lender when they gather your information for a pre-approval letter. It’s smart to gather information about your income, current debt, and credit history. Put the information somewhere that is easy to access because it will help to expedite the process.
Your mortgage broker will use this information to determine what your loan will look like. Brokers will then get quotes from several different lenders that fit what you’re looking for and compare the rates. Once you and your mortgage broker have figured out which of the quotes is best for you, the broker will submit an application to that lender.
Eventually, a lender will approve you for the loan, and once you have secured the loan from your lender, you will move forward with the process and close on your home as usual. When you close, either you or the lender will pay the broker an origination fee.
This is how the mortgage broker makes their commission. They are paid in the form of an origination fee only if you choose to successfully close on a home thanks to a loan that the broker sourced for you.
Is a Mortgage Broker Right for You?
As you can imagine, there are both pros and cons of hiring a mortgage broker. While they bring a lot of expertise to the process of searching for a loan, it’s always important to be aware of the ways in which a mortgage broker might not work in your best interest as well.
Advantages of Working with a Mortgage Broker
- Bringing Connections to Your Mortgage Loan Search: As experts dedicated to matching customers with lenders, mortgage brokers have a strong network of connections with lending companies. This makes it possible for them to find loan options that you may not have been able to find on your own.
- Streamlining the Application Process: If you’ve applied for a mortgage before, then you’re likely familiar with the back and forth nature of communication during the process of applying for a loan. It can take months to settle all of your financial details without a broker, but working with a mortgage broker means you’ll likely save a lot of time since they can apply for loans on your behalf once they have your information.
- Awareness of Hidden Fees or Increased Costs: Since mortgage brokers know the ins and outs of the lending process, they can spot hidden fees or other aspects of a loan offer that aren’t conducive to your situation.
Disadvantages of Working with a Mortgage Broker
- Transparency About the Loan Search: Working with a mortgage broker typically takes some of the work off your plate, but it’s very important to determine that their interests align with yours. If they aren’t working with your best interest in mind, then they won’t make decisions that work out in your favor. Take the time to read reviews from past customers and consider shopping around to make sure you’re getting the best rates.
- If the Homeowner Pays the Origination Fee: Either the lender or the homeowner will have to pay the origination fee to the lender when you close on the house. If you as the homeowner have to pay, you will need to come up with the cost of the origination fee in addition to all of the other closing costs associated with the home. Borrower fees vary, but typically, they amount to 1% or 2% of the entire loan amount. A 1% origination fee on a $200,000 loan would be a $2,000 origination fee, and it would most likely need to be paid in the form of a cashier’s check.
- If the Lender Pays the Origination Fee: If the lender pays the mortgage broker’s origination fee, that means you’ll spend less money when you close on your home. However, watch out for brokers who agree to higher rates and fees on mortgage loans in order to look more attractive to lenders. This can cost you a lot of money in the long run, and it also indicates that the mortgage broker isn’t working in your best interest.
How Do You Find a Mortgage Broker?
It’s easy to search the internet and find mortgage brokers near you. However, vetting them and figuring out their intentions is important, and this can take some time to complete. If you can, seek out referrals from friends or family members.
Just as it’s good to shop around for lenders, it’s also smart to find two or three mortgage brokers whom you can interview. Compare the rates of all of the lenders you’re considering, too. That way, you’ll be able to be confident in knowing that you have a trusted professional on your team.
Mortgage Brokers vs Loan Officers
It’s important to not confuse mortgage brokers with loan officers. Loan officers also help you understand what interest loans you qualify for, but they work for a bank or as part of a lending institution. Mortgage brokers work independently for their customers, meaning they will have your best interest in mind instead of a company’s best interests since they are not affiliated with any institution in particular.
Working with Mortgage Brokers to Find Your Mortgage Loan
Mortgage brokers act as middlemen between borrowers and lenders. They help borrowers find loans that work best with the borrower’s financial needs and constraints.
While either the borrower or the lender will have to pay an origination fee at closing, the expertise that mortgage brokers bring to the mortgage loan search process can be invaluable in sourcing great options for the borrower. Comparing and interviewing an array of mortgage brokers before working with them can ensure that the borrower is working with the right mortgage broker for them!
This page last updated: March 21, 2022