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A mortgage broker is a go-between who connects borrowers to mortgage lenders and helps manage the mortgage loan process. A mortgage broker may also help resolve complications and collect the necessary paperwork from the borrower to pass along to the mortgage lender for processing and approval purposes. They might earn a commission from the lender or the borrower at closing, but generally not both.
What Does a Mortgage Broker Do?
Mortgage brokers' duties depend a great deal on what services they offer. Not to be confused with a mortgage lender that loans you money from a bank, credit union or other financial institution, a mortgage broker doesn't lend money. Instead, a broker is an independent licensed professional who works with many lenders to find the best loan options with the best terms for borrowers. Mortgage brokers may save you time and money during the homebuying process.
A mortgage broker's duties may include the following:
- Researching the current market to find a mortgage that fits your needs best
- Educating themselves on your creditworthiness
- Assisting you with obtaining preapproval for a mortgage loan
- Collecting documentation that will be used to prepare your application based on information you provide
- Completing the application for your mortgage loan
- Making sure you understand all legal disclosures
- Submitting the documents required by the lender
- Looking for ways to help you save money on your mortgage
How Does a Mortgage Broker Get Paid?
Regulations introduced by the Dodd-Frank Act have restructured how mortgage brokers get paid. As independently licensed professionals, mortgage brokers collect fees for their services, which may be paid by the borrower or the lender. The fees charged must be itemized and disclosed upfront so you know exactly what is being charged and why.
The loan-specific fees are typically 0.5% to 1% of the loan amount. So, if your loan is for $300,000, you or your lender might pay a fee as high as $3,000, which can be added to the amount of your loan or paid upfront at closing. Brokers are only paid once the transaction is finalized, and the mortgage broker cannot charge hidden fees or tie their fee to your loan's interest rate.
Pros and Cons of Working With a Mortgage Broker
While a mortgage broker can save you a great deal of time finding the right loan and lender for your situation, as well as collecting and submitting documents to the lender, there are also drawbacks to using a broker.
- Industry knowledge: Brokers, in general, have a great deal of experience and knowledge about the mortgage loan process, which can save you money and the time you'd spend trying to find the right lender and loan for your situation.
- Trusted by lenders: Brokers work with many lenders and form working relationships that garner trust and confidence. In fact, some lenders prefer to only work with brokers.
- Management of fees: There are several fees that come with taking on a new mortgage, possibly including application and origination fees. It may be possible for your mortgage broker to get the lender to waive some of these fees, saving you money.
- Broker fees: Fees can vary from one lender to the next, adding to your overall loan amount. Although sometimes the lender may pay the fee, you may have to come up with the extra cash instead at closing or it may be tacked onto the loan amount. Ask your broker who pays their fee before you begin working with them.
- Not always the best options: Although mortgage brokers work with many lenders and lending institutions, they may not always come up with the very best loan options to meet your specific needs. It may be best to compare the offers you receive from a mortgage broker with the rates and terms your bank offers to ensure you're getting the best deal.
- Availability: Not all lenders work with brokers. So, if you have your heart set on working with your current bank or a lender you've worked with in the past, you may not have the option of working with a broker.
Mortgage Broker vs. Loan Officer
Although the roles are similar, there are key differences between a mortgage broker and a loan officer. While both brokers and loan officers work with mortgages, a broker works as a go-between to help match you with lenders that are well-suited to your needs. On the other hand, a loan officer might work with a specific bank, credit union or another mortgage lender, and will offer only the mortgage rates and programs available from that one institution.
If you're unsure a mortgage broker is licensed, you can check with the Nationwide Mortgage Licensing System & Registry (NMLS), which maintains a database of licensed brokers.
The Bottom Line
Just as important as working with professionals—like a mortgage broker—who can make getting a mortgage as straightforward and uncomplicated as possible, focusing on your financial health and monitoring your credit report and credit score for free from Experian can ensure you're in good shape when your dream house comes to market.
You can also see how differences in rates and repayment terms affect the amount of your monthly mortgage payment and the total cost of a home over time by using a mortgage calculator. That way, you'll get a better idea of what your monthly mortgage payment may look like.