What Is a Mortgage Broker?

FT Contributor  | 

A mortgage broker is a middleman between a borrower attempting to obtain a mortgage or refinance one and the financial institution attempting to provide lending options. Mortgage brokers have relationships with several financial institutions that provide different loan and refinancing options. It’s their job to obtain these options and present the offers with the most competitive interest rates and terms to the borrower.

If you’re buying a home or refinancing your current mortgage, a mortgage loan broker is helpful because he or she does the legwork of applying for loans at several financial institutions. In addition to obtaining several loan offers and providing you with the best options, the mortgage broker is also responsible for working with the institution’s underwriting department to provide the necessary paperwork so the deal can close smoothly and successfully.

The mortgage broker also deals directly with the real estate agent to ensure the loan closes promptly and in correspondence with the closing date on the home. Mortgage brokers are licensed financial professionals who can ensure the loan process is handled efficiently so you can get the best mortgage for your new home or an optimum refinancing option for your current home.

Mortgage Broker vs. Loan Officer and Loan Originator

While a mortgage broker’s job seems similar to that of a loan officer or originator, there are some differences. A mortgage loan broker has relationships with several financial institutions and can compare different loan options from these institutions to choose the best option for a specific borrower. He or she is paid directly by the lender or in some cases, the borrower, when a loan is closed successfully.

In contrast, a loan officer or originator works directly for a single financial institution. He or she only offers a borrower loan options that are available from that institution. The loan officer can still assist the borrower with the mortgage underwriting and closing process, but he or she can only offer the loan options available from the institution the originator works for. A loan originator is generally paid a salary and may be provided with bonuses for closing loans through the institution.

Who Pays the Mortgage Broker?

It’s important to understand who pays the mortgage broker before you decide to use one when obtaining a loan. In most cases, a mortgage broker is paid by the lender. When the broker closes a loan with a financial institution, the broker receives a small percentage of the loan amount as compensation. Generally, mortgage loan brokers make between 0.50% and 2.75% of the loan amount when a deal is successfully closed with a financial institution. By law, a financial institution cannot pay a mortgage broker more than 3% of the loan amount for closing a deal.

You can also choose to pay the broker fees yourself, which is referred to as “borrower-paid compensation.” The amount you pay as a borrower can vary, depending on the home sales price and current market trends, including the competitiveness of the market. Mortgage brokers working in high-value markets, such as big cities or coastal areas, generally have lower broker fees. A mortgage broker can be paid by you, the borrower, or by the lending institution, but never by both sources.

Should I Use a Mortgage Broker?

If you’re not sure whether or not a mortgage broker will be beneficial for you when obtaining a loan or refinancing your current mortgage, you should review the pros and cons of using a broker.

Pros

  • Applies for loans at institutions for you, saving you time.
  • Shops several financial institutions for competitive rates.
  • Negotiates terms on your behalf, which may save you money.

Cons

  • You may be responsible for a mortgage broker fee.
  • You’ll need to pay attention to lender fees and review them on the loan costs section of the loan estimate form, under “A: Origination Charges” or “Origination Fee.”
  • You’re responsible for comparing interest rates and all additional fees, including closing costs, to ensure you’re getting the best deal.

What to Look for in a Mortgage Broker

When you agree to the terms of a mortgage, you commit to a loan that you’ll pay off for the next 10, 20, or sometimes 30 years. Therefore, it’s important to choose a helpful mortgage broker who can ensure you get the best deal that supports your financial future and goals.

When deciding which mortgage broker to use in your area, it’s important to understand how the broker receives his or her compensation. Ask if the broker is paid at the lender- or borrower-paid compensation rate. Since the mortgage loan broker is responsible for applying for loans with financial institutions on your behalf, he or she should be a trustworthy professional who has your best interests in mind.

Ask friends and family members who you know and trust for referrals to mortgage brokers that they’ve used in the past and had good experiences with. You can also check online reviews for potential mortgage brokers to ensure past customers were happy with their performances. The Better Business Bureau (BBB) is a great resource to use when you’re attempting to identify the best home loan brokers for you. The BBB may provide past clients reviews, grades, and more information on mortgage brokers in your area.


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