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 people who want to refinance home loans 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.

Pros and cons of using a mortgage broker

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

When should you use a mortgage broker?

Using a mortgage broker can benefit you in several different ways, but there are also some drawbacks.

When you should consider a mortgage broker

Working with a mortgage broker may be a good idea for you if:

You want help researching loans

Shopping for a home loan with a broker can save you time and effort. You’ll 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.

You want help securing the best rates and terms

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.

You want access to more loan products

Amy Tierce, vice president and senior loan officer with BayCoast Mortgage, a Massachusetts-based lender, said experienced mortgage brokers may have access to more loan products, including programs for riskier loans.

You want help with the application process

Brokers can help you fill out a mortgage application and gather the documentation you need to provide. They can also explain terms and provide specialized advice during the process.

When you shouldn’t consider a mortgage broker

Working with a mortgage broker may not be for you if:

You don’t want to be limited to specific lenders

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

Amy Tierce 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.

You want someone to help you with the entire process

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

You don’t want to pay additional fees

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

Jay Dacey, president of Jay Dacey Mortgage Team, a broker based in 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.

How to choose a mortgage broker

You can compare home loan options online to find the best rates and terms without speaking to a broker. Still, if you want to work with a mortgage broker that can provide advice and a personalized experience, take these steps to find the right one for you.

Ask family and friends for referrals

Amy Tierce 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

Jay Dacey 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.

» MORE: How to choose a mortgage lender

FAQ

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.