When I bought my first house, I had no real idea how the process worked. So when my realtor recommended I work with their preferred mortgage broker to get my home loan, I didn’t question it. That broker helped me score a loan with a 2.875% interest rate, which was better than the average. Plus, the broker helped me save a lot of time choosing and taking out a mortgage.
Mortgage brokers help connect borrowers with home loan offers and guide them through applying. If you’re buying a home, learning more about what a mortgage broker does can help you decide whether working with one will be the smartest choice for you — and how to choose one.
What is a mortgage broker?
A mortgage broker is a third party that helps connect you with mortgage lenders. You can think of them as mortgage advisors or mortgage consultants. They typically have relationships with several lenders, allowing them to find you a lender that meets your needs.
What exactly does a mortgage broker do?
A mortgage broker has a few main responsibilities, including:
- Helping you find the best interest rates and home loan options for your situation
- Gathering all the paperwork you need for your loan
- Making sure the home loan process moves along through closing
Do you pay a mortgage broker?
In exchange for them helping you secure a mortgage, you may pay your broker a set fee or a percentage of your loan. Or — like what happened in my case — the lender pays a fee instead, and you pay nothing.What’s the difference between a mortgage broker and a loan officer?
Working with a mortgage broker is different from working directly with a loan officer at a financial institution. Loan officers work for a single company and can provide you with mortgages only from that company. This limits your mortgage selection unless you work with several loan officers from different lenders.
Reasons to use a mortgage broker
While I didn’t know I had options when it came to working with a mortgage broker, I must admit they made the process very easy on my end. Here are some reasons why using a mortgage broker can make sense.
1. Can help you better understand the mortgage process
Mortgage brokers work with borrowers to help them get a mortgage. Part of this process is helping customers learn how much of a loan they might get approved for and how to get approved. Trust me, it’s great to have someone holding your hand through this part and answering all your mortgage questions.
Brokers can help you understand what documents you’ll need to provide to get approved for a mortgage and how information such as your credit score or debt-to-income ratio (DTI) could impact your eligibility. They can also explain why your mortgage may be limited to a certain amount.
For example, I had a lower mortgage limit than expected as a freelancer. That’s because banks don’t always look favorably on income that doesn’t come from a full-time employer. Essentially, they didn’t trust that my income was stable and didn’t want to give me a higher limit.
Good to know
If your broker works on commission, their commission may be tied to the size of a mortgage. Although they can help you learn what you may be able to get approved for, make sure it’s an amount you’re comfortable with.2. Can help you compare and access lenders
Mortgage brokers often work with a variety of lenders. Some brokers also have relationships with lenders that don’t typically work with the public. Due to these relationships, brokers know which mortgage companies to turn to to get the best shot at the right loan for you, and they may have access to more loan products than you would on your own.
Brokers essentially screen clients with a soft credit check and usually only submit loan applications for borrowers they believe will be approved. This helps lenders reduce the number of applications that don’t lead to mortgages.
3. Can save you a lot of effort
Without a mortgage broker, you usually have to apply with each lender to get an estimate of rates and costs. You may have to submit applications with different lenders to get several quotes, which can be time-consuming and stressful. Even worse, this can hurt your credit if each lender runs a hard credit check.
Brokers have good working relationships with their lenders. They often have a rough idea of the rates a lender is offering, closing costs to expect, and unique requirements. Knowing this information upfront and allowing your broker to shop for you can save you time and hassle.
4. May help you pay lower fees
Lenders charge a long list of fees when you take out a mortgage. These can include application fees, underwriting fees, origination fees, appraisal fees, credit check fees, and more.
Mortgage brokers intimately know the fees lenders charge — and this gives them bargaining room to ask for fee waivers.
Because a mortgage broker does some of the work for the lender, the lender may be willing to waive a fee you might not get waived on your own. The volume of business a broker sends a lender may also influence the fees you’re charged.
Reasons to avoid using a mortgage broker
Here are some problems you can run into when working with a mortgage broker.
1. Can be conflicts of interest
According to the Dodd-Frank Act, a broker cannot be paid by both the borrower and the lender. However, the way mortgage brokers are paid may create conflicts of interest.
For example, brokers may try to steer you toward lenders that offer them a higher commission — even if that lender doesn’t have the best mortgage rates. If lender A gives them a 2% commission for a mortgage but lender B only pays 1%, they might refer you to lender A.
Because brokers on commission may get paid a percentage of the loan amount, they may also try to get you to take out a larger loan than you’d take out otherwise. This could jeopardize your finances while they would receive a higher paycheck.
However, you might also face similar problems with loan officers employed by a bank who work on commission. So, while it’s something to look out for, it’s not a reason to avoid brokers entirely.
2. They might charge a broker fee
It’s common for brokers to charge anywhere from around 1% to 2% of the loan for their commission. My mortgage broker charged a 2% fee with my loan, but luckily, the lender paid it. This is in addition to the other fees you’ll pay for your mortgage, like your origination and application fees.
Because lenders working with brokers usually experience a smoother process, you may get a discount on your loan through a broker. But if the lender you use doesn’t offer a broker discount and you also have to pay a broker fee, you may end up paying more for your mortgage than if you applied through the lender directly without the broker’s help.
In these cases, working directly with a lender or loan officer might make more sense to skip out on the broker fee.
Important
Your mortgage broker is legally required by the Truth in Lending Act to disclose fees so that you understand what they’ll be.3. They might have less access to lenders
Believe it or not, some lenders don’t want to work with brokers to attract more business. This can be true of online-only lenders like Better.com or Rocket Mortgage, which may have enough buzz on their own.
A lender may not want to pay the commissions and fees brokers might charge. Other lenders may not want to deal with the hassle of working with non-employees to originate mortgages.
Whatever their reasons, some lenders won’t be accessible to you if you solely work through a broker. For this reason, it may still make sense to do some rate shopping on your own in addition to reviewing the offers a mortgage broker sends you. This way, you can ensure you’re getting the best overall deal.
Is it worth it to use a mortgage broker?
At the end of the day, I found my experience using a mortgage broker very worthwhile. They did all the work for me so I could focus on other parts of the home-buying process, like getting my finances in order and reading inspection reports.
Overall, I think using a mortgage broker may be worth it if they can secure you a better mortgage than you can find on your own. For example, if you’re a freelancer or are self-employed, having a broker who can guide you to lenders specializing in non-traditional income can be priceless.
I also think they’re a great option for first-time homebuyers, like I was, who need their hands held through the long and tedious process.
However, it’s best to compare offers from a broker with a couple of lenders you checked yourself to verify you’re getting a good deal. Brokers aren’t guaranteed to get you the lowest prices, especially if you’re willing to consider online-only lenders known for having lower fees.
Also, if you already have a lender you want to work with, you don’t need to hire a mortgage broker as a middleman.
How mortgage brokers compare
Here’s a breakdown of the differences between brokers, lenders, and loan officers.
Brokers | Loan officers | Lenders | |
Definition | Professional who partners with multiple lenders to get you a mortgage | Professional who works for one lender to get you a mortgage | Institution providing the loan |
Potential fees | 1% to 2% broker fee (on top of 0.5% to 1% origination or administration fee) | 0.5% to 1% origination or administration fee | 0.5% to 1% origination or administration fee |
What loans options will you have? | Options from several banks or credit unions | Options from one specific institution | Options from one specific institution |
What happens after the loan closes? | You’re on your own | You can reach out for questions and support | You can reach out for questions and support |
When does this option make the most sense? | You don’t have the time or knowledge to look into mortgage rates and want someone to handle the work for you | You want to compare rates from a few different banks on your own before deciding on which one to go with | You have accounts at an institution that offers rate discounts on a mortgage, so you already know you want to take out a home loan with them |
How to choose a mortgage broker
Choosing a mortgage broker doesn’t have to be complicated. Here are a few tips for finding the right broker for you:
- Ask for referrals. Your real estate agent, friends, and family probably have someone they can recommend.
- Check online reviews. Look for online reviews for the mortgage broker you plan to use, keeping an eye out for recurring problems or issues.
- Ask about fees upfront. Knowing fees upfront also gives you a chance to negotiate before moving forward.
- Understand communication styles. Find a broker willing to work with you and your preferred contact method.
- Verify timelines. Confirm the mortgage broker can make sure the loan closes by your required deadline.
FAQs
How does a mortgage broker get paid?
Either you pay the broker or the lender pays the broker. They may charge you a flat fee or a percentage of the mortgage fee as part of your closing costs. Alternatively, the lender may pay the broker a commission for bringing them business.
Is it better to use a mortgage broker or bank?
Whether it’s better to use a mortgage broker or a bank depends on your specific situation and the mortgage options offered by both. In some cases, working with a local bank or credit union instead of a big bank may make sense if they can offer a special deal or better mortgage rates.
Is it worth talking to multiple mortgage brokers?
Ideally, you should settle with one mortgage broker. However, you can talk to as many as you like to find someone worth working with. But when it comes time to start finding the best rates, make sure you’re only working with one broker so you don’t have multiple hard credit checks on your credit report.
Bottom line
As long as you understand how a mortgage broker is compensated and that compensation doesn’t result in a worse mortgage, using a broker could save you a lot of time price shopping on your own. Shopping around for the best mortgage could be one of the smartest money choices you make, whether you’re looking for a new mortgage to buy a home or to refinance your current one. If you feel the benefits of using a broker outweigh the downsides, a mortgage broker can help you shop for the best mortgage deal.
If, on the other hand, you feel like you’d prefer to handle the task yourself, you can start by checking out our list of the best mortgage lenders.