What To Know About Finding and Working With Mortgage Brokers
The biggest factor in buying a home — besides finding the perfect house, of course — is finding the right mortgage loan. A mortgage broker can help you identify the best options by sourcing from different lenders, giving you access to a wider variety of products than you might find if you worked directly with lenders.
What Is a Mortgage Broker?
A mortgage broker is an intermediary who helps you find a mortgage loan by analyzing your finances and comparing mortgage products from different lenders to find one that suits your circumstances.
What Does a Mortgage Broker Do?
Unlike lenders, who lend you money directly, a broker does not make loans. They have relationships with a range of lenders, and they do the legwork to compare different products from those lenders. They then recommend loan options that you’re likely to qualify for and that fit your goals.
A mortgage broker may also collect financial documents you’ll need to apply for a loan and submit a preapproval application for you, in addition to offering insights into the local market.
As you begin the home-buying process, you may hear the terms “mortgage broker” and “loan officer.” Though they can both be part of your buying journey, they’re not the same. A broker helps you find a loan and refers you to the lender that offers it. A loan officer works for a lender, such as a bank. They can help you apply for a loan but can only refer you to the products their company offers.
So, for example, if you’re certain that you want to take out an FHA loan to buy a house, you’ll need to borrow from a lender who offers those types of loans. A mortgage broker can help you identify those lenders.
However, you don’t have to work with a mortgage broker. You can request quotes from several different lenders and research their offerings yourself. But if you’re pressed for time or want to make sure you’re aware of all possible options, a broker can help simplify the process.
Mortgage Broker Fees and Costs
Mortgage brokers get paid in one of two ways:
- They earn a commission from lenders.
- You pay a broker fee.
If you’re considering using a broker, ask up front about their fee structure and whether you’ll owe points on the mortgage, which are fees you can pay to reduce your overall interest rate and, therefore, your monthly payments. Find out exactly how much you’ll owe if they charge borrowers directly so you can determine whether their cost is justified by how much help they can provide.
If they earn a commission from lenders, you may be concerned that a broker will steer you toward loans on which they make the most money. But Kimber White, president of the National Association of Mortgage Brokers (NAMB), says mortgage brokers have a fiduciary responsibility to recommend the best loans for your situation. Keep in mind, however, that although lenders pay broker commissions, they may pass on that cost to the borrower with a higher interest rate or fees.
The Dodd-Frank Act, which was passed following the housing crash in 2008, curtailed certain predatory practices among brokers and lenders. In the past, brokers and originators were incentivized to recommend loan products that may not have been in consumers’ interest (for example, the size of the loan or the terms meant it would be more difficult for them to repay the loan). But Dodd-Frank instituted new regulations meant to prevent predatory lending and ensure that consumers were only recommended and approved for loans within their means.
Nonetheless, it’s always a good idea to ask the broker about the types of loans they’re most familiar with and the types of clients they typically serve. Be sure to check out online reviews and keep an eye out for any comments regarding exorbitant mortgage broker fees.
Should I Use a Mortgage Broker?
You don’t need a mortgage broker to get a mortgage. Many homebuyers find a lender on their own, whether that’s through word of mouth or online research. But a broker can make the process easier and expose you to loan opportunities you might not have found yourself. They can also help you decide which type of loan makes the most sense for you if you’re trying to decide between, say, a conventional mortgage or a government-backed loan program.
Advantages of Working With a Mortgage Broker
There are several solid reasons to work with a mortgage broker, including:
They may have access to better loan options and rates than you’d find on your own.
They may be able to recommend lenders based on your unique needs (for instance, if you’re a freelancer and need a lender willing to work with self-employed borrowers).
They can save you time on mortgage research.
They can help keep your application on track by letting you know which documents you’ll need for a loan to be processed.
They may offer insights and guidance on how to improve your chances of being approved for a mortgage, especially if they know what certain lenders look for in a borrower.
When you find the right broker, they can make the home-buying process much easier than if you go it alone. However, you may want to meet with a few different brokers. This way, you can compare their fees and processes and make sure the person you choose has a track record of helping borrowers similar to you.
Disadvantages of Working With a Mortgage Broker
As helpful as mortgage brokers can be, it’s not the right path for everyone. There are downsides to working with brokers as well:
There’s no guarantee that a broker will find you the best deal, and you may be able to get a great loan by working directly with a lender.
Not all lenders work with brokers, which means you could miss out on some loan options that would be well-suited to you.
You may have to pay a broker fee on top of standard mortgage expenses (origination fees, closing costs, appraisal, title fee, etc.).
If the broker is focused primarily on loan volume, they may not emphasize customer service, and you may end up feeling rushed to choose a loan when you’re not fully confident in your choice.
While a mortgage broker can help you on your homeownership journey, it’s critical to consider whether you need someone to act as a go-between for you and lenders or whether you’re willing to put in the time to find a great deal yourself. Depending on the broker’s history and fee structure, you may find that the extra time it takes to find a loan on your own is worth saving some money and having peace of mind.
What Questions Should I Ask a Mortgage Broker?
Just because you meet with a mortgage broker doesn’t mean you have to work with them. In fact, you’ll be doing yourself a favor by meeting with several brokers so you can compare their terms and experience levels. But before committing to working with a particular broker, there are several key questions to ask.
- How long have you been a mortgage broker?
- How long have you worked in this particular market?
- What types of borrowers do you typically work with?
- Have you worked with borrowers like me (similar needs or financial profile) before?
- Do you specialize in any particular loan types?
- How will you be paid?
- Do you have an existing relationship with the real estate agent or mortgage lenders you will refer me to?
- Will you be acting as a fiduciary? That is, will you recommend the best loans for my circumstances regardless of the financial gain to your business?
- How much do you charge?
- Do you have testimonials or references?
- Are you a member of any industry associations? If so, which ones?
- Can I verify your license?
- How long do you expect it will take to close my mortgage loan?
You’re looking for a few key elements with these questions. First, you want to know that the broker has solid industry experience and understands your needs as a borrower. Then, you want to know how they get paid and how much their services will cost you. Finally, you’re confirming that the broker is licensed and can perform the services they offer you. You’re also getting an estimate of how long it might take to complete the loan process and take possession of your house.