Mortgage Brokers: What Do They Do and Should You Need One?

If you need assistance sorting through loan alternatives, finding the best interest rates, or navigating difficult borrowing obstacles, a mortgage broker might be of use.  It’s possible to find a mortgage without the assistance of a broker, but doing so may leave you unsatisfied with the terms offered.

Before you visit a commercial bank, credit union, or private creditor, familiarize yourself with the following information regarding mortgage brokers.

What Exactly Is a Mortgage Broker?

A mortgage broker, in contrast to a mortgage creditor, does not provide loan funding but rather assists debtors in locating the most suitable creditor for their individual needs. To facilitate transactions between debtors and creditors, licensed and regulated financial specialists known as “mortgage brokers” play a key role.

A broker may be able to get you ideal rates and terms compared to a single creditor because of the connections they have with other institutions. Even if you work with a broker, you should always shop around and compare loan offers to ensure you’re obtaining the best terms and rates.

Despite the fact that they help streamline the application and approval processes, mortgage brokers cannot really close the deals on their client’s behalf.

Your broker will assist you in gathering the necessary documents, submitting them to the underwriter, and scheduling the home appraisal after you have decided on the best creditor. The mortgage broker will begin closing day preparations once they receive clearance to do so.

What Does a Mortgage Broker Do?

A mortgage broker coordinates with the debtor’s other professionals (such as the real estate agent, underwriter, and closing agent) to secure the best possible loan terms and timely closure.

A mortgage broker may choose to either work for a brokerage firm or on their own. Mortgage brokers do their clients’ bidding by investigating available lending programs and negotiating terms with creditors. A mortgage broker can also manage the buyer’s financing paperwork, including pulling credit reports and verifying income and spending.

In addition, many mortgage brokers have connections to a strong loan-pricing system that can compare the costs of a mortgage loan with those of multiple creditors simultaneously.

What’s the Difference Between a Mortgage Broker and a Loan Officer?

A mortgage broker is different from a mortgage creditor in that the broker does not actually lend the money for the mortgages themselves. Mortgage brokers instead connect creditors and debtors and are responsible for the loan’s initial stages. 

Brokers can work alone or as part of a brokerage organization, and they collaborate with many different types of creditors such as banks and other financial institutions.

A loan officer, on the other hand, works for a certain financial institution and can only provide the loans that that institution makes available to its customers. Officers in this role typically evaluate applicants, and then either approve or recommend loans.

An expert broker may know more than a loan officer does. Loan officers might not be as knowledgeable in mortgages as brokers because they may also be responsible for other sorts of loans.

Additionally, a debtor who goes directly to a commercial bank for a mortgage may pay more in the long run due to the bank’s operational expenses. A broker, on the other hand, might be capable of securing a loan for you from the wholesale section of the bank at a more favorable interest rate.

Nevertheless, financial institutions frequently argue that they are the safer option for a mortgage, particularly for long-term customers.

Mortgage Brokers: Pros and Cons

You may receive a great mortgage rate through a mortgage broker who will be there for you every step of the way. A mortgage broker’s pros and cons are discussed below.

Pros

• Buyers can benefit from the services of a mortgage broker since they help with the application process and are there to help them find a loan that meets their needs. Through their efforts in handling paperwork, coordinating with all parties, and monitoring the progress of underwriting, they help bring about a quicker close.

• A mortgage broker may help you select the ideal loan choice for your needs among a variety of creditors, loan programs, and interest rates. They could be able to get you better interest rates than you could get by talking to your creditors on your own.

• A mortgage broker can help you save a lot of money over the course of your loan by negotiating lower or even zero mortgage origination fees.

• Your mortgage broker can tell you how much house you can afford and if you will be approved for a mortgage loan.

• A mortgage broker might be helpful when working with a buyer who has less-than-perfect credit or whose income is inconsistent.

• Brokers are frequently in a position to counsel clients on the best loan terms and interest rates available to them due to their wide network of contacts.

• Working with a mortgage broker who has industry knowledge might help you avoid making expensive mistakes.

Cons

• The broker may require the debtor to pay a charge of one percent to two percent of the total loan amount.

• Those who want to settle as many loans as rapidly as possible aren’t always able to deliver excellent service because of the high volume of business they must process.

• Borrowers who don’t take the time to investigate mortgage brokers run the risk of working with a broker who makes mistakes and otherwise makes the process of buying a property complicated and time-consuming. Based on where you reside, it could be difficult to find a reliable broker in your area.

• A mortgage broker provides no assurance of a competitive interest rate. There are debtors who could be better off getting a loan from a regular bank rather than working with a mortgage broker.

• When compared to a mortgage banker, a mortgage broker may have less influence over your loan file since it is not underwritten in-house.

• Depending on their connections to different creditors, brokers may act in favoritism. Perhaps a broker would steer you toward the creditor that pays them the highest commission instead of the one who can offer you the best terms.

• You may be unable to qualify for certain loan programs since certain creditors do not cooperate with mortgage brokers.

How Do Mortgage Brokers Get Paid?

Although the mortgage broker is often compensated after the closing of the deal, this is not always the case. In any case, the mortgage broker will earn a charge equal to a fraction of your loan amount (often 1% to 2%).

Debtors may elect to have fees included in the principal balance of their loan. Commissions for the broker are usually rolled into the total price of the loan if the creditor is paying the bill.

Mortgage brokers are prohibited from charging any hidden fees by federal law. The broker cannot get compensation from both you and the creditor, nor can they accept commissions from any companies with which they are linked.

Should You Get A Mortgage Broker?

Use of a mortgage broker can save you a lot of time that would otherwise be spent applying for pre-approval with many creditors, going through the underwriting process, and keeping the deal on track. Having a mortgage broker take care of all of the paperwork for you is a huge time saver.

Keep in mind the creditor’s fees while making your final decision, whether you hire a broker or not. Ask what charges will show up in the “A: Origination Charges” portion of the Loan Costs section on Page 2 of the Loan Estimate form.

Then, compare the interest rate, fees, and closing expenses listed on each creditor’s Loan Estimate side by side.

The ideal method to choose wisely when making one of life’s biggest purchases is to compare your options side by side.

When Does a Mortgage Broker Make Sense?

Instances, where a mortgage broker could prove useful, are:

• You’re in a rush to get a home loan, and you don’t have time to go through the mortgage application procedure properly.

• You’re having trouble securing a mortgage because of your less-than-perfect credit or because you own your own business. You could find a loan that works for your needs with the aid of a broker.

• Your mortgage fees are too high, and you want a broker’s help getting rid of them altogether.

• You need assistance or direction with the loan application procedure.

• Ideally, you’d be able to tap into a broker’s pool of creditors.

• You want to get a better rate than those you see offered for loans.

Bottom Line

A mortgage broker helps their clients find great loan terms, regardless of whether they have good or terrible credit or are looking to buy a specific style of property. They can also assist you to locate the most competitive deal even if interest rates rise.

You shouldn’t avoid using a mortgage broker because of any stereotype. When qualifying for a mortgage, it can be helpful to have a qualified expert handle the details on your behalf.