Should I Work With a Mortgage Broker?

·7 min read

A mortgage broker can help if you want support sifting through loan options, pinpointing the best interest rates or overcoming complex borrowing challenges. Although you can shop for a home loan on your own, a mortgage broker acts as a matchmaker to connect you with the right lender for your needs.

Here's what you need to know about working with a mortgage broker before you head to a big bank, a credit union or a private lender.

[Read: Best Mortgage Lenders.]

What Is a Mortgage Broker?

A mortgage broker, unlike a mortgage lender, does not fund loans but instead helps you find the right lender for your financial situation. Mortgage brokers are licensed and regulated financial professionals who act as a bridge between borrower and lender.

A broker can have access to a variety of lenders, which may give you a bigger selection of products and terms than a direct lender. Working with a broker doesn't guarantee that you're getting the best deal, though, and you will still need to compare the terms and conditions of loan offers.

Brokers can originate loans and manage the approval process, which can save you time, but they do not close mortgages themselves.

After you choose an ideal lender, your broker will help you compile your paperwork, send it to an underwriter and order a home appraisal. Once you are cleared to close, the mortgage broker will start to prepare for closing day.

[Read: Best Mortgage Refinance Lenders.]

How Do Mortgage Brokers Get Paid?

Usually the lender pays the mortgage broker after the loan closes, but sometimes the borrower pays the broker at closing. Either way, the mortgage broker receives a fee that is a small percentage of your loan amount, usually 1% to 2%.

When the borrower pays, the fees can be rolled into the loan amount. When the lender pays, the broker's commissions are typically built into the cost of the loan.

Federal law bans mortgage brokers from charging hidden fees. Brokers cannot be paid by you and by the lender, and they can't get kickbacks from affiliated businesses.

What Are the Advantages of Using a Mortgage Broker?

-- A mortgage broker can save buyers time and stress by finding and vetting loans and managing the mortgage process. Brokers deal with paperwork, coordinate with relevant parties and keep underwriting on track, which could help you close your loan faster.

-- A broker can provide access to different lenders, loan types and rates. In fact, a mortgage broker may be able to get special rates that are lower than what you could obtain from a lender on your own.

-- A broker can help you manage mortgage fees by getting the lender to reduce or waive them, which can save hundreds or even thousands of dollars.

-- A mortgage broker can share insights into how much house you can afford and your chances of loan approval.

-- A broker can help in challenging financial situations, such as a buyer with less-than-perfect credit or inconsistent income. Brokers are often familiar with lenders that will work with nontraditional borrowers and can help pinpoint the best available loans and rates.

-- A broker can save you from mistakes based on the broker's expertise of the mortgage industry.

What Are the Disadvantages of Using a Mortgage Broker?

-- The borrower may have to pay the broker a fee of 1% to 2% of the loan amount.

-- In the competitive mortgage business, brokers looking to close as many loans as quickly possible may not always provide great service.

-- A borrower who fails to research mortgage brokers could end up with an error-prone broker who makes homebuying tedious and difficult. Finding a reputable local broker may be tough depending on where you live.

-- A mortgage broker doesn't guarantee that you're getting the best deal. For certain borrowers, traditional banks could offer better loans than mortgage brokers.

-- Mortgage brokers may have less control over your loan file because it's not underwritten in-house, as it would be with a mortgage banker.

-- A broker can be biased based on relationships with lenders. Maybe a broker favors a lender that pays a commission rather than the lender that gets you the best deal available.

-- Some lenders do not work with mortgage brokers, which means you may not access to certain loan programs.

Who Should Use a Mortgage Broker?

You may want to use a mortgage broker if:

-- You don't have time or patience for the mortgage application process, or you're in a hurry to secure a home loan.

-- You don't have great credit or you run your own business, and you are struggling to find mortgages that will work for you. A broker might be able to access loans that can benefit you.

-- You would like a broker to help you waive or lower your mortgage fees.

-- You want guidance with the loan process or would like someone to help walk you through it.

-- You would like access to a broker's network of lenders.

-- You want a mortgage broker to help you negotiate or qualify for a lower interest rate than many advertised loan rates.

How Can You Find a Good Mortgage Broker?

Shopping around is your best bet to find a broker who not only has the right personality but also the knowledge to support your homebuying needs.

Ask for referrals from friends, family members or seasoned real estate agents; speak with people who have recently bought homes; and research reviews. As you are combing through reviews, make sure you evaluate the broker and not the brokerage firm.

"The No. 1 thing consumers who are shopping for loans should do is look at third-party reviews for the individual originator," says Jennifer Beeston, branch manager and senior vice president of mortgage lending at Guaranteed Rate, an online mortgage lender. "Then they can see how the broker is treating clients and what type of service they're giving."

Third-party reviews are ratings and comments gathered on sites such as Google or Yelp, while first-party reviews are collected and displayed on the broker's own website.

Interviewing brokers can also help you find the right blend of personality, professionalism, responsive communication and trust. It can give you a good idea of the service quality and the flow of the mortgage process.

Ask how often the broker closes on time and how the broker is paid so you can compare fees and negotiate. Also, consider how well each broker communicates and connects with you.

"You must feel comfortable with the mortgage broker and feel like you can tell them anything, because in order to have a successful loan, you need to tell them everything," Beeston says. "You don't want a relationship where you feel like they're condescending, or you feel like a burden or a nuisance, because there's so many talented brokers who would love your business."

[Read: Best Adjustable-Rate Mortgage Lenders.]

How to Avoid Problems With Mortgage Brokers

Doing due diligence before you hire a broker can help you feel reasonably confident that you've chosen someone trustworthy who will communicate effectively, value your business, protect your interests and meet deadlines.

Consider interviewing brokers to check that they have the products you need and that they can communicate well with your real estate agent. If the broker and the agent don't communicate properly, money can be left on the table, says Elysia Stobbe, author of "How to Get Approved for the Best Mortgage Without Sticking a Fork in Your Eye."

"Ask them questions just like you would when you go to a doctor," Stobbe says.

The buyer should try to get a feel for whether the broker is a team player because the purchase hinges on positive interactions between all of the parties in the process. "Just because a mortgage broker's licensed doesn't mean they're skilled at their craft," Stobbe says.

Check the National Multistate Licensing System to see whether a broker you're thinking of working with has faced any disciplinary actions.

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