What Is a Mortgage Broker?
A mortgage broker is an intermediary between a financial institution that offers loans that are secured with real estate and individuals interested in buying real estate who need to borrow money in the form of a loan to do so. The mortgage broker will work with both parties to get the individual approved for the loan. They also collect and verify all of the necessary paperwork that the lender needs from the individual in order to complete the home purchase. A mortgage broker typically works with many different lenders and can offer a variety of loan options to the borrower they work with.
What Does a Mortgage Broker Do?
A mortgage broker aims to complete real estate transactions as a third-party intermediary between a borrower and a lender. The broker will collect information from the individual and go to multiple lenders in order to find the best potential loan for their client. Finally, the broker serves as the loan officer; they collect the necessary information and work with both parties to get the loan closed.
How Much Does a Mortgage Broker Cost?
A mortgage broker may be compensated through a combination of fees paid from borrowers and commissions that are paid out by the lending institutions who want them to originate loans. The costs vary greatly but a mortgage broker generally earns between 1% and 3% of the total loan amount. The total amount paid by the borrower will vary based on the type of loan, what broker is used, and how much the broker is earning in commissions from the lending institution.
A mortgage broker’s pay could show up on your closing costs sheet in a variety of ways. They may charge loan origination fees, upfront fees, loan administration fees, a yield-spread premium, or just a broker commission. When working with a mortgage broker, you should clarify what their fee structure is early on in the process so there are no surprises on closing day.3
When Does a Mortgage Broker Get Paid?
A mortgage broker typically only gets paid when a loan closes and the funds are released. Some lenders pay mortgage brokers based on their own accounting schedules, which can be up to 30 days after the closing of the loan. The majority of brokers don’t cost borrowers anything up front and they are generally risk-free. However, they will check your credit to see what type of loan arrangement they can originate on your behalf.
When Should You See a Mortgage Broker?
You should use a mortgage broker if you want to find access to home loans that aren’t readily advertised to you. If you don’t have amazing credit, if you have a unique borrowing situation like owning your own business, or if you just aren’t seeing mortgages that will work for you, then a broker might be able to get you access to loans that will be beneficial to you. Many individuals prefer to work with a broker regardless of their situation because it gets them access to lenders they wouldn’t think to look for. Mortgage brokers may also be able to help them qualify for a lower interest rate than most of the commercial loans that are available.
The Bottom Line: Do I Need A Mortgage Broker?
Working with a mortgage broker can save the borrower time and effort during the application process, and potentially a lot of money over the life of the loan. In addition, some lenders work exclusively with mortgage brokers, meaning that borrowers would have access to loans that would otherwise not be available to them. Brokers can get lenders to waive application, appraisal, origination, and other fees.
It’s critical to examine all the fees, both those you might have to pay the broker, as well as any fees the broker can help you avoid, when weighing the decision to work with a mortgage broker.