What Is A Mortgage Broker And How Do They Help Homebuyers?

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Working with a mortgage broker to navigate today’s housing market is a smart choice, especially for first-time home buyers. From finding the best interest rate to completing your application to paying off your loan on time, mortgage brokers are well-versed in the home financing experience. Let’s take a look at what a mortgage broker is, how they work, and how they can help you.

What is a Mortgage Broker?

A mortgage broker is an intermediary who matches borrowers with mortgage lenders. If you’re thinking about buying or refinancing a home, a broker can help you find the best mortgage for your needs.

They work with everyone involved in the lending process, including real estate agents, underwriters, and closing agents. This collaboration ensures that borrowers get the best loan possible that closes on time. Mortgage brokers pull buyers’ credit reports, verify income and expenses, and organize loan documentation. Many brokers also have access to powerful loan costing systems, which allow them to price mortgages from many lenders at once, streamlining the process.

“Mortgage brokers can not only help with the most competitive rates and pricing, but they can also help make sure the loan is a good match with a specific lender,” explains Andrew Weinberg, principal at Silver Fin Capital Group in Great Neck, N.Y. “They can quickly determine which lender is best for an individual borrower.”

Mortgage Brokers vs Lenders vs Loan Officers

Mortgage Broker	Mortgage brokers match borrowers with potential lenders and loans. Brokers are affiliated with a variety of lenders, including commercial banks, credit unions, mortgage companies and other financial institutions, and can work independently or in conjunction with a brokerage firm.
Mortgage Lenders	A mortgage lender is the party responsible for providing borrowers with the funds to purchase a home.
Loan Officer	Loan officers are employed by banks, credit unions, and other lending institutions and are limited to providing loan products offered by their employer. Generally, loan officers act as a liaison between financial institutions and individual borrowers, evaluating borrowers, guiding them on applications, etc. A loan officer can also refer to someone who approves or recommends the approval of a loan, but strictly speaking, that is the job of an underwriter.

Brokers and lenders both “serve” loans, but in different ways. Mortgage brokers don’t originate or fund mortgages; only lenders actually provide the funding. Instead, brokers act more like mortgage advisors or counselors, showing clients different options and working with the selected lender on the borrower’s behalf to approve, close, and fund the loan.

The duties of a mortgage broker and a loan officer are similar in that they both help borrowers apply for a mortgage. However, a broker is an independent entity that can work with a variety of lenders, whereas a loan officer works directly for a specific mortgage lender. A loan officer is the borrower’s main point of contact if the borrower uses a bank, credit union, or traditional lender to obtain a mortgage.

How do mortgage brokers work?

Mortgage brokers act as agents for borrowers, working with many lenders to find the best mortgage for their situation. Some lenders are “wholesale” only, meaning they don’t deal directly with the public, but only through other professionals, so borrowers must go through a broker to get a mortgage.

But that’s not all a broker’s job: When you apply with a broker, they do the heavy lifting of submitting many applications to lenders on your behalf. They can also advise you to avoid lenders that charge additional fees and other costs.

Mortgage brokers have a fiduciary responsibility to borrowers, which means they are expected to work in the borrower’s interest, not their own or the lender’s.

Keep in mind that brokers charge a fee at the closing of a loan, which you or the lender will pay, and there’s no guarantee that working with a broker will get you better terms than you would if you dealt without one.

How much does a mortgage broker cost?

Broker fees (usually paid by the lender) vary but typically range from 0.50 percent to 2.75 percent of the loan principal. Federal law caps broker fees at 3 percent and requires that they not be tied to the loan interest rate.

“Most brokers, in most cases, don’t charge borrowers any fees at all,” Weinberg says. “The fees that lenders pay to brokers don’t add a penny to the borrower’s closing costs, just like the fees that big banks pay loan originators don’t add to your closing costs.”

“Before the (2008) recession, consumers didn’t know how much the broker would be paid, but in today’s mortgage landscape, the cost of the loan is charged to the borrower and the lender purchasing the loan gives a credit equal to that cost, so there’s no cost to the borrower,” says Rick Masnik, branch manager at Network Funding in North Smithfield, Rhode Island.

In very few cases, brokers charge borrowers a service fee, but borrowers will pay a commission of 1 to 2 percent of the loan principal. Before you begin working with a broker, ask about their fee structure and whether (if any) you will be required to pay anything.

Why use a mortgage broker?

There’s no reason not to use a mortgage broker, Masnik said: Borrowers who use one benefit from a more personal experience and having a licensed professional running the process on their behalf.

“Working with someone you can meet in person and who your real estate agent has used in the past and trusts is always a great resource,” Masnik says.

When deciding whether a mortgage broker is right for you, consider the advantages and disadvantages of using a broker.

The Benefits of Working with a Mortgage Broker

A mortgage broker can help you save on fees: When you get a mortgage, you’ll pay origination fees, application fees, and appraisal fees, to name just a few, and a mortgage broker may be able to get the lender to waive some or all of these fees.
Using a mortgage broker can save you money on the cost of the loan itself. When it comes to the actual mortgage, a broker may be able to find you better terms than you could get on your own. Brokers have access to a wider range of loans and lenders, including some that you wouldn’t be able to access as an individual. A mortgage broker, especially in a rising interest rate environment, can help you find the best mortgage rate.
Using a mortgage broker can save you time. Your broker will do all of the research on rates and fees. They will negotiate on your behalf, file the paperwork, and keep your application on track.
A mortgage broker can save you from making a big mistake. A broker can help you avoid the pitfalls of a particular loan. They read all the fine print. They know the differences between lenders and the twists and turns of a mortgage.
A mortgage broker can help you find the right lender in tricky situations, such as: If your credit history or financial situation is less than stellar, or the property you want to buy is unusual, a broker can help you find lenders who offer more lenient standards or non-QM loans (non-traditional mortgages), or who specialize in certain types of properties.

Disadvantages of using a mortgage broker

Not all lenders work with mortgage brokers. Brokers may not have access to all loan programs at a particular financial institution.
You may have to pay your broker: Typically, the lender pays the brokerage fee, but in some cases the borrower may cover the cost.
Potential conflicts of interest: Brokers may favor lenders who pay them more or offer the highest commissions, and it’s unlikely (not to mention unethical) that a broker would pressure you to go with a lender simply because they’re more competitive, but they may steer you away from or not tell you about lenders that aren’t in their network.
Broker estimate It may be misleading: The loan quote provided by a lending institution three days after your loan application may not match the breakdown initially provided by the broker. Lending institutions may charge higher interest rates and fees based on the financial standing of the borrower, resulting in a higher cost of financing.

How to Find a Mortgage Broker

Finding a mortgage broker requires some homework. Here are some steps to help you choose one:

the study: Ask for referrals from real estate agents, friends and family. Read online reviews and check the Better Business Bureau for any complaints.
Narrow down to a few brokers. Consider the broker’s communication style, level of expertise, and how they manage their client’s needs.
Interview with the broker: Ask lots of questions to get a sense of how they work and whether they are knowledgeable about the types of mortgages you can get.
Talk to former clients: Ask for references from some previous clients and make sure to speak to them in person.

Ultimately, it’s up to you to find the best mortgage provider through a broker or loan officer and shop around for the best rate and lowest cost.

Questions to ask a mortgage broker

How much does it cost and who pays it? Typically paid by the lender to the mortgage broker, broker fees can appear in a variety of forms on your Loan Estimate or Closing Disclosure Statement, so be sure to find out up front to avoid any surprises at closing.
Which lenders do you work with? Most mortgage brokers have a set number of lenders they work with, but not all brokers work with the same lenders. Make sure your broker works with lenders that offer the type of mortgage product you’re interested in.
How much experience do you have? A good rule of thumb is to choose a mortgage broker who has been in the industry for at least three years, and if you’re interested in a specific type of mortgage, ask how much experience the broker has with that type of loan.
Are you licensed to do business in my state? Find out if your mortgage broker is licensed by the National Mortgage Licensing System and Registration Board. The NMLS registration number should also be displayed on the broker’s website and in their email signature.
Do you have any reference materials? Ideally, you’ll find a mortgage broker through a recommendation from a friend, relative or colleague, but if not, it’s wise to check with their references. Ask for the names and contact information of several recent clients and ask about their experience with the broker.
How do you handle rate lock? A rate lock guarantees you the offered rate for a set period of time, even if interest rates fluctuate. Common rate locks are for 30 or 60 days. If your lender allows it, you can add a “float down,” which guarantees a lower rate if interest rates drop during the lock-in period. Ask your broker for a loan commitment or pre-approval letter from your lender. It should state the interest rate and points, the date the rate was locked in, and when the lock expires.