At some point in the mortgage process, you might find yourself wondering what a mortgage broker is, and why you might choose to work with them.
Who they are
Put simply, a mortgage broker is a middleman between the borrower and the bank or mortgage lender. They’re kind of like a borrower’s Sherpa, leading them to the summit of the perfect loan.
It doesn’t matter if a client is looking to refinance or purchase a new home, the mortgage broker will do their part to help them qualify. Just remember that since they are a middleman with no affiliation to anyone except themselves, they will inevitably take their slice of the pie (more on that later).
What they do
The first thing they will do is gather all of the necessary information. That means income, asset, and employment documentation, plus a credit report. The mortgage broker will then look over all of the borrower’s information and decide what the best way to obtain financing will be. This means, they’ll advise the borrower on the loan amount, the loan-to-value ratio, and the type of loan.
When the specifics of the loan have been decided on, the broker will submit the loan to a lender they work with to gain approval. Throughout the process, the broker will talk with the bank and the borrower to make sure both parties are on the same page.
One of the major benefits of using a mortgage broker is that they can shop around with multiple banks and lenders to find the best rate/loan program. This is in contrast with a loan officer, who’s confined to the lender they work for, so if you get declined that’s the end of the road.
With a mortgage broker, if a borrower gets declined they’ll just move on to another lender. It’s also possible that a mortgage broker will be working with fewer clients, and will therefore be more available for any questions/concerns a borrower might have.
In reality, there’s no guarantee that they’ll search high and low for the best loan. It’s entirely possible that they’ll steer the borrower toward a loan that makes them the most money.
It’s important to ask for multiple quotes from as many lenders as possible. Of course, the only way a borrower can be sure they are getting the best deal is to do their own research.
How they make their money
There are a few different ways a mortgage broker can get paid. Typically, they charge loan origination fees and/or broker fees. This usually amounts to 1-2% of the loan, and can either be paid up front or added into the loan. Because of the Dodd-Frank Act—no hidden fees are allowed—the broker must be willing and able to tell you exactly what each and every fee is for.