Qualifying for a mortgage loan often starts with a search for the right lender. Keeping track of interest rates, fees and closing costs as you do your research can be overwhelming; a mortgage broker can help you determine the type of loan that’s best for you and look for a lender that offers the lowest costs.
What does a mortgage broker do?
A mortgage broker is different from a loan officer, who works directly for a bank or lender. Instead, a broker works as an intermediary between you and the lenders and can introduce you to various loan products at different financial institutions.
The benefit to you is that a mortgage broker often has connections to different types of loans for various circumstances. They can often access loans for people with non-W-2 employment, lower credit scores and various other financial positions. Brokers also have connections with lenders with a range of interest rates.
Mortgage broker vs. lender
You might assume that when buying a home you need to go directly to a bank or financial institution to get a mortgage, but this isn’t the case. Instead, you can go to a mortgage broker.
A mortgage broker helps connect buyers with lenders.
There are differences between going to a mortgage broker and going directly to a mortgage lender. A lender only has access to loan products offered through its financial institution. If you have a very straightforward loan, this might be fine. However, a mortgage broker can introduce you to many loan products that might better suit your needs.
Fees at a lender might be lower than with a broker; however, shopping around for a loan by using a broker lets you compare offerings and rates from different companies.
Mortgage broker vs. loan officer
If you decide to go directly to a mortgage lender, you will likely work with a loan officer. A loan officer shows you loan products from one financial institution, while a mortgage broker has access to many mortgage loans with different terms and interest rates.
Other than the loan programs they have access to, their jobs are very similar. They will both ask you to provide your personal information, including income, and everything needed to complete a loan application. If you have a steady income and good credit, it might be best to work directly with a loan officer. If you want to shop around for different interest rates, a mortgage broker is a good option.
Working with and what questions to ask a mortgage broker
If you decide to work with a mortgage broker, there are certain documents you will need to provide in order to see what loan products you qualify for. It is important to understand not only what you will need to provide, but also what questions you should ask and how to negotiate with a broker.
- What information will you need to provide for a mortgage broker?
- If you decide to work with a mortgage broker, they will ask you to provide several things, including:
- Income verification, including a W-2, pay stubs, tax returns and information about alimony or child support payments
- For self-employed workers, two to three years of tax returns, Form 1099 documents and profit-and-loss statements (brokers usually ask for these)
- Asset and debt information, including retirement/investment account statements, bank statements and a gift letter if gift funds are being used to purchase the home
- Information so the mortgage broker can verify your credit score and payment history through a credit report
- Information about any bankruptcies or foreclosures and utility or insurance payment history (if you don't have a credit history)
Keep in mind this is not an all-inclusive list, and the broker might require additional documentation to process a loan application. These documents are used to see what type of loan program and which lender is most appropriate for your mortgage loan.
- How do you negotiate with a mortgage broker?
- When you’re working with a mortgage broker, it is possible to negotiate things like the borrower fee, lender commission and other fees.
The difference between a borrower fee and a lender fee is who pays the broker. This amount is included in the Loan Estimate. A borrower fee is paid by the borrower and is usually rolled into the closing costs. If the mortgage broker is being paid by the lender, the lender sometimes tries to recoup that cost by increasing the mortgage rate for the borrower. Discussing these fees is essential when negotiating with a potential mortgage broker.
You can also ask about hidden fees; however, in 2010 the Dodd-Frank Act was enacted to prevent lenders and brokers from using fine print that might mislead borrowers.
- What are the most important questions a first-time buyer should ask a mortgage broker?
- If you are a first-time buyer, there are questions you can ask a mortgage broker to see if they're the most qualified to help you find a loan:
- Do you have any references or reviews from previous clients?
- How many years have you been a broker?
- What are the fees I will pay for working with you?
- What lenders do you work with?
There are also questions you will want to ask about the specific mortgage products the broker shows you from different lenders, including:
- What is the interest rate and annual percentage rate (APR)?
- What are the closing costs?
- How much is the down payment?
- Is there a prepayment penalty if I pay my loan off early?
- How much is the mortgage insurance?
- What type of mortgage loan is best for me?
Mortgage broker pros and cons
There are pros and cons to working with a mortgage broker. If you have good credit, you might want to work directly with a lender to save on the fees you will pay to a mortgage broker.
However, the time savings and greater number of loan options make working with a broker attractive to many homebuyers.
Mortgage broker benefits
There are several benefits to working with a mortgage broker.
- Provides access to a variety of loan products
A broker has access to a wide variety of mortgage products from different lenders. A representative works with you to look at a variety of lenders to find the best loan product for you. This can help you find the lowest interest rates and best mortgage to fit your needs.
- Helps first-time homebuyers
Working with a mortgage broker is especially helpful if you are a first-time homebuyer. Navigating buying a home and finding a mortgage is a complex process; a broker can help walk you through it step by step.
- Saves you time and stress
Researching different lenders on your own can be quite a task. Having a broker do this for you saves a lot of time and stress. Brokers also have much more knowledge than the average homebuyer and can help you compare your choices.
Mortgage broker drawbacks
Working with a mortgage broker is not in the best interest of every homebuyer. Here are a few cons to be aware of when working with a broker:
- Fees and commissions
When you work with a mortgage broker, you will pay a fee or commission for its services. Even if you do not pay it directly to the broker, the lender might add the fees to your closing costs.
- No loan approval
It's the lender or bank that will approve your home loan — not the broker. Working with a broker does not change the requirements each lender has to qualify for a loan.
- Broker relationships with lenders
Some brokers might have favorite lenders to work with. Make sure the broker you're working with is independent. Ask when you're meeting with potential brokers how they make their lender recommendations.
Ultimately, whether or not it's beneficial to work with a mortgage broker or with a direct lender or loan officer depends on your situation. Things to consider are the type of loan you need, if you are a first-time homebuyer and your credit score. If you aren’t sure, you can always interview a few brokers to see if the benefits they offer are worth the extra cost.
How to choose a mortgage broker
Choosing to work with a mortgage broker is a personal decision, and there are several ways to help you decide if it's right for you. First, research different brokers. Ask for referrals from friends and family. You can also check review sites to see what feedback other clients offer.
When looking for a mortgage broker, you should also ask for credentials and professional standards. This includes things like continuing education, involvement with local mortgage professional associations and up-to-date licensing. It's always a good idea to talk directly with a potential broker to get an overall feeling for its ethical and professional standards.
- Article sources
- ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. To learn more about the content on our site, visit our FAQ page.
- Federal Trade Commission (FTC), “Dodd-Frank Wall Street Reform and Consumer Protection Act, Titles X and XIV.” Accessed April 26, 2021.
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