Were you also told to have a mortgage broker help with your home-buying process? While their services make things easier, it is not necessary to hire one.
Mortgage brokers act as the middleman between home buyers and lenders. So, they are not the ones lending you the money to buy a house. They work with different companies to help you find a home loan that suits your needs.
A mortgage broker is a licensed and regulated financial professional. Their job includes comparing home loans from different lenders. They assess which are the best deals for homebuyers after reviewing your documents. They may also pull your credit report and verify your income.
Some banks would accept direct inquiries and assessments from clients. But there are also some who would want you to contact a broker first. So, although their job makes the decision stage easier, it is not mandatory to hire them.
So, the question now is, why use a mortgage broker instead of a bank? When lenders and home buyers may work together with or without the broker? Read further if you are still unsure if it’s worth spending extra dollars to pay mortgage brokers.
Let’s see what mortgage brokers do!
Express Takeaways
- A mortgage broker works with many lenders to find a loan that suits a certain homebuyer.
- A mortgage broker receives a commission either from the homebuyer or the lender.
- Hiring a mortgage broker is ideal if you have the extra funds and you need help in choosing a home loan.
- Research and a real estate agent’s advice may help with the mortgage process without a broker.
What Is a Mortgage Broker?
Mortgage brokers are individuals or companies who find home loans for other people. Their job may include some or all of the following tasks.
- Negotiating interest rates
- Helping in the processing of home loans
- Closing mortgages under their names, but the funds are from other people
Mortgage brokers earn money by acting as the middleman between buyers and lenders.
How Does a Mortgage Broker Get Paid?
Mortgage brokers may have a set salary. But, most of the time, they receive commission from the lender or from you, as the homebuyer.
Do Mortgage Brokers Have a License?
Local and national governments suggest working with a licensed mortgage broker. Check the Nationwide Mortgage Licensing System and Registry (NMLS) to verify.
How Much Does a Mortgage Broker Charge?
There is usually no law that governs how much a mortgage broker must charge you or the lenders. But, they may ask for up to 1% to 2% of the loan amount through the following payment methods.
- Cash
- A percentage of the loan that increases your loan amount
- Compensation from the lender
An Act prohibits mortgage brokers from receiving compensation from both parties. So, they may not receive a commission from both the lenders and the homebuyers.
How Is a Mortgage Broker Different from a Lender?
A mortgage broker can close home loans under their name, but the funds come from the lenders. So a mortgage broker only helps in finding and processing transactions. But, they do not use their money to invest. Mortgage lenders are financial institutions that lend you money for home loans. Some homebuyers find it hard to distinguish them from each other, so it is best to ask a company about their role.
How Is a Mortgage Broker Different from a Loan Officer?
Mortgage brokers are third parties that work with the lenders. While loan officers are employees who work for them.
Is it Ideal to Hire a Mortgage Broker?
Mortgage lenders may work with home buyers in a direct manner without the help of a broker. Some financial institutions may also prefer to have you ask for help from a third company, too. So, to answer this question, it’s best to assess the advantages and disadvantages of hiring one.
What Are the Benefits of Hiring a Mortgage Broker?
Mortgage brokers may make the following things happen in your homebuying journey.
- Reduce the workload and processing time. Since brokers are already experienced and knowledgeable enough about the process.
- Give you better access and wider options, since some lenders may only work with brokers
- Waive some small fees since they have already built a good relationship with the lenders
The above may seem very beneficial, but you may also want to look at the other side of it.
What Are the Disadvantages of Hiring a Mortgage Broker?
Below are the cons of working with a mortgage broker.
- There is a chance to pay extra for the same offers. Lenders may give the same terms and rates to both home buyers and mortgage brokers.
- Pay extra money, as brokers will receive compensation for the work they do. While the lender can pay them, their commission may still come from your loan amount.
- There is no guarantee that you will receive the same terms and conditions once you close a home loan. Mortgage brokers may use an estimate that lenders may change on the actual application.
- Limited access to mortgage lenders, as some may choose to refrain from working with a broker.
If you still want to hire a mortgage broker, you may use many resources to find one.
How To Find a Mortgage Broker?
A real estate agent, a neighbor, and a fellow homebuyer may give you recommendations. There are also websites now that are specific to finding one ,so you may also try browsing the internet.
How To Choose a Mortgage Broker?
Actual feedback from the people you know may help in choosing which mortgage broker to hire. Online reviews and testimonials can also give you an idea of how it is working with a certain company. There is also no harm in asking them about their experience, fees, and the exact services they provide.
What Can You Do If You Will Not Hire a Mortgage Broker?
It is not mandatory to hire a mortgage broker, especially since it incurs extra costs. Working your way around the homebuying journey is possible without a third-party company. It may even save you dollars in choosing to work in a direct manner with a lender.
Researching and asking a real estate agent may help in understanding the processes. There are many resources online that may guide you in deciding which offer and lender to choose. For instance, Homebuyer Wallet explains many mortgage words in simpler terms. It’s just one of the website’s free features aside from recommending a down payment assistance program ideal for you. It’s a database of all the Community Home Investment Programs (CHIPs) available throughout America.
A mortgage broker is a licensed individual or company that earns by finding loans for buyers. Hiring one is good if you need help finding a good mortgage that suits your needs, processing, and closing it. But, if you do not want to pay more, you may work with lenders too in a direct manner. Doing your own research and the expertise of a real estate agent may be beneficial. A mortgage broker is not the same as a lender, as they do not fund home loans. They are a separate entity from a lender. So, they are also different from loan officers who work for lending companies.
Article Sources
Homebuyer Wallet requires its writers to get information from original and reliable sources. Please see our editorial policy to learn more about our standards for producing factual information and content.
- Consumer Financial Protection Bureau, “What is the difference between a mortgage broker and a mortgage lender?, https://www.consumerfinance.gov/ask-cfpb/what-is-the-difference-between-a-mortgage-broker-and-a-mortgage-lender-en-130/”
- Commonwealth of Massachusetts, “Mortgage lender, broker, and loan originator information for consumers, https://www.mass.gov/info-details/mortgage-lender-broker-and-loan-originator-information-for-consumers#mortgages-brokers-”
- State of Georgia’s Department of Banking and Finance, “Mortgage Brokers and Mortgage Lenders, https://dbf.georgia.gov/mortgage-brokers-and-mortgage-lenders”
- Consumer Financial Protection Bureau, “Is my broker being paid for getting me a mortgage loan?, https://www.consumerfinance.gov/ask-cfpb/is-my-broker-being-paid-for-getting-me-a-mortgage-loan-en-132/”
- Federal Trade Commission, “Shopping for a Mortgage FAQs, https://consumer.ftc.gov/articles/shopping-mortgage-faqs”
- California Department of Real Estate, “Using the Services of a Mortgage Broker, https://www.dre.ca.gov/files/pdf/re35a.pdf”
- Consumer Financial Protection Bureau, “Summary of the final rule on mortgage loan originator qualification and compensation practices, https://files.consumerfinance.gov/f/201301_cfpb_loan-originator-compensation-rule_summary.pdf”
- FHA, “Loan Officer, https://www.fha.com/define/loan-officer”
