Should I use a mortgage broker?

What is a mortgage broker?

A mortgage broker is an intermediary between lenders and borrowers. Brokers work with homebuyers and those wanting to refinance a home loan to find the best possible loan product for their needs across multiple mortgage companies.

Mortgage brokers explain your loan options and help you gather the required documentation for your loan, including bank statements, pay stubs and proof of assets. They typically walk you through the home loan process from start to finish. They are often also a point of contact regarding the home loan until the day of closing.

Should I work with a mortgage broker?

To determine if working with a mortgage broker is right for you, consider these pros and cons.

Benefits of working with a mortgage broker

Using a mortgage broker can benefit you in several different ways. Brokers present a range of loan options that work for your needs and help you secure a home loan with the best possible rate and terms. Amy Tierce, a senior loan officer with the lender radius financial group, said experienced mortgage brokers may have access to more loan products, including programs for riskier loans.

Shopping for a home loan with a broker can also save you time and effort. You share personal details and information about your income and down payment once, then get an idea of how a mortgage might work with several companies.

Drawbacks of working with a mortgage broker

Working with a mortgage broker doesn’t guarantee you access to the best mortgage products. Mortgage brokers don’t work with every single lender, so there’s no guarantee you get the best offer out there. Some mortgage brokers try to steer you toward a specific home loan based on the potential for a higher commission from a preferred lender.

Tierce, the senior loan officer from radius, said she has seen this play out many times over her 30-year career. While many people assume a mortgage broker shops around for the best rate and lender, Tierce said some brokers have a list of lenders they sell their loans to. These companies may or may not be the best.

In addition, the broker may not be very involved with the process after your initial application. "They are purely a pass-through," she said, adding that often, the lender manages the approval and closing process.

It’s also crucial to find out how a mortgage broker gets paid before you decide to work with one.

Jay Dacey, of Jay Dacey Mortgage Team, a broker based in St. Paul, Minnesota, said some mortgage brokers are paid by lenders for referring new customers. Other times, borrowers are responsible for the broker’s compensation or wind up paying a higher fee in exchange for a lower interest rate on their home loan.

In today's competitive home loan market, you shouldn't have to pay an upfront fee for specialized help. Ask how a broker gets paid, and make sure you get a clear answer before moving forward.

How much do mortgage brokers charge?

Mortgage brokers typically charge between 0.50% and 2.75% of the total loan amount, depending on the fee structure and whether the mortgage lender or the borrower pays. When a homebuyer pays the fee, it may be wrapped into the home loan or paid at closing.

For example, on a $300,000 home loan, the fee for using a mortgage broker could range from $1,500 to $8,250. This amount may be inconsequential to you if the lender is the one that pays it. However, make sure the broker isn’t steering you toward a more expensive home loan to make up for it.

If a mortgage broker asks you to pay a fee, weigh the pros and cons of doing so ahead of time. For example, working with a mortgage broker that charges a fee may expose you to better loan offers from a wider range of lenders. However, you may not know whether a mortgage broker can get you a better deal unless you also take the time to compare other home loan options yourself.

A mortgage broker that charges a fee may also provide better service due to their payment structure. However, this can also vary, and you may not know the quality of the services you're getting until you begin working with a company.

How do I choose a mortgage broker?

You can compare home loan options online to find the best rates and terms without speaking with a broker.

If you do want to work with a mortgage broker that can provide advice and a personalized experience, take these steps to find the right one for your home purchase:

• Ask family and friends for referrals. Tierce, the senior loan officer from radius, said you can start the process by talking to real estate professionals, friends and colleagues who have recently purchased a home. Ask them which brokers communicate well and make themselves available when their clients have questions.
• Interview mortgage brokers on the phone. Call a few mortgage brokers in your area to learn about their services and any upfront fees they charge. Make sure you ask how many lenders they work with and the steps they typically take to ensure you get the best home loan you can qualify for.
• Read online reviews. Dacey, from Jay Dacey Mortgage Team, said you should take the time to read online reviews of mortgage brokers you're considering, adding that sometimes people will employ friends or family members to leave them reviews. "If you notice someone has 20 reviews and all of them are lumped together within a few days of each other after a negative review, then that's a sign they are maybe not legitimate," he said.

Bottom line

Using a mortgage broker can help you save time and hassle when you're ready to get a home loan. However, you should weigh the pros and cons of paying a fee to get professional assistance with a mortgage. Ask questions to find out how a broker gets you the loan with the best rates and terms you can qualify for.

Ultimately, finding the best mortgage involves doing your homework and reading some fine print — even if you do utilize a mortgage broker’s services. Feel free to get professional help with your mortgage if you need it, but don't hesitate to do lender research on your own.