A mortgage broker handles the process for you by applying for loans from various lenders, determining competitive interest rates, and negotiating the loan terms.
You’ve narrowed down your search for the home of your dreams and are now looking for the best mortgage to take those keys into your own hands. One way to do this is to work with a mortgage broker who can walk you through the loan process from start to finish.
You’ve probably heard the term “mortgage broker” from your real estate agent or friends who have bought a home. But what is a mortgage broker and what does someone else do, like a loan officer in a bank?
1. What is a mortgage broker?
A mortgage broker acts as an intermediary between you and potential lenders. The broker’s job is to work with multiple banks on your behalf to find mortgage lenders with competitive interest rates that best meet your needs. Mortgage brokers have a well-developed group of lenders that they work with which can make your life easier.
Mortgage brokers are licensed and regulated financial professionals. You do a lot of the prep work, from collecting your documents to extracting your credit score and verifying your income and employment. They use this information to apply for loans from various lenders in a short period of time.
2. How is a mortgage broker paid?
Mortgage brokers are often paid by lenders, sometimes by borrowers but never by both, says Rick Bettencourt, president of the National Association of Mortgage Brokers. Lender-paid compensation plans pay brokers 0.50% to 2.75% of the loan amount, he says.
You can also pay the broker yourself. This is called “the compensation paid by the borrower”.
“When you buy a mortgage broker, you want to ask them, ‘What is your lender compensation rate [and] what is your borrower compensation rate,” Bettencourt explains. “You could be at the same pace. But you have to do your due diligence [and shop around].”
The competitiveness and prices of real estate in your local market affect brokerage fees. In coastal areas, cities, and other markets in the country with high-quality real estate, brokerage rates can only be 0.50%. In the other direction, however, federal law limits the amount of compensation.
“Under Dodd-Frank … runners cannot earn more than 3% in points and fees,” Bettencourt says. This restriction was included in the Financial Regulation Act due to irregular lending which triggered the housing collapse. Originally applied to mortgages of $ 100,000 or more, although this threshold has increased with inflation.
3. What distinguishes mortgage brokers from loan officers?
Loan officers are employed by a lender and receive a fixed salary (plus bonuses) for lending to that lender.
Mortgage brokers who work in a mortgage brokerage firm or who work independently with many lenders and get most of their money from fees paid by the lender.
4. Is a Mortgage Broker Right for Me?
A mortgage broker, on your behalf, applies for loans from various lenders, buys competitive mortgage rates, and negotiates the terms.
You can also save time by using a mortgage broker. Applying for different loans can take hours. Then, two-way communication is required to sign the loan and ensure the transaction stays on track. A mortgage broker can save you from having to deal with this process.
However, when choosing a lender (broker, bank, online, or otherwise), you should pay special attention to the lender’s fees. In particular, ask what fees appear on page two of your loan estimate form in the “Loan Costs” section under “A: Original Fees”.
Then take the loan estimate you get from each lender, line it up, and compare the interest rate and all closing fees and costs.
This direct comparison of prices between different options is the best way to make the right decision for one of the possibly most important purchases of your life.
5. How do I choose a mortgage broker?
The best way is to ask friends and relatives for recommendations, but make sure they’re actually walking down the hall.