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 can be a wise move, especially for a first-time homebuyer. From finding the best interest rate to completing the application to closing the loan on time, mortgage brokers are well-versed in the home-financing experience. Let’s explore what mortgage brokers are, how they work and how they can help you.

What is a mortgage broker?

A mortgage broker is a go-between who matches borrowers with mortgage lenders. If you’re buying a home or refinancing, 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 a borrower gets the best loan that closes on time. Mortgage loan brokers also pull the buyer’s credit reports, verify their income and expenses and organize the loan paperwork. Many brokers can access a powerful loan-cost system, as well, which prices a mortgage across many lenders at once, thereby streamlining the process.

“A mortgage broker not only helps you get the most competitive rates and pricing, they also help make sure your loan is a good match with the particular lender,” says Andrew Weinberg, principal at Silver Fin Capital Group in Great Neck, New York. “They can quickly determine the best lender for each individual borrower.”

Brokers and lenders “offer” loans — but in different ways. A mortgage broker doesn’t originate or fund mortgages; only lenders actually provide the money. Instead, the broker serves similarly to a mortgage advisor or counselor, showing the client various options, and then works with the chosen lender on the borrower’s behalf to get the loan approved, closed and funded.

A mortgage broker and a loan officer are similar in that they both help the borrower apply for a mortgage. But, while brokers are independent entities able to work with a variety of lenders, loan officers work directly for a particular mortgage lender. A loan officer is the borrower’s primary contact point if they use a bank, credit union or traditional lender to get a mortgage.

How do mortgage brokers work?

Mortgage brokers have a fiduciary duty to the borrower — which means they are legally obligated to act in the borrower’s best interest (and not their own or a lender’s). Below is a breakdown of what you can expect a mortgage broker to do. They:

• Act as agents for borrowers: Mortgage brokers work on behalf of borrowers to find them the best mortgage for their situation.
• Have access to more lenders: They work with a wide range of lenders, including those that operate only on a “wholesale” basis and don’t deal directly with the public.
• Handle multiple applications: Brokers do the legwork of submitting mortgage applications to various lenders on your behalf.
• Help you avoid extra costs: They can help you avoid lenders with hidden fees or unfavorable terms.

Mortgage brokers are also subject to federal regulation. The Consumer Financial Protection Bureau (CFPB) plays a key role in enforcing rules that protect borrowers, especially under the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA). These regulations help ensure that borrowers are treated with fairness and transparency during the mortgage process.

How much does a mortgage broker cost?

“Most brokers do not charge the borrower anything at all in most scenarios,” says Weinberg. “The compensation paid to the broker by the lender does not add a penny to the borrower’s closing costs, just like the compensation paid by the big banks to their…loan originators doesn’t add to your closing costs.”

In the few instances a broker does charge the borrower for their services, borrowers can expect to pay a fee between 1 to 2 percent of the loan principal. Federal law caps broker fees at 3 percent and requires that they not be linked to a loan’s interest rate. Before you commit to working with a broker, ask about fee structure and what you might be responsible for paying, if anything.

If you’re worried about the fees and would like to avoid the extra expense, consider finding a lender on your own. You can do this by reading lender reviews and using mortgage rate comparison tools to find competitive options without a broker’s help.

Why use a mortgage broker?

When deciding if a mortgage broker makes sense for you, consider the benefits and drawbacks of using one.

How to find a mortgage broker

Finding a mortgage broker requires some homework. Here are steps you can take to make your choice:

• Research: Ask your real estate agent, friends and family for referrals. Read online reviews and check with the Better Business Bureau for complaints.
• Narrow it down to a few brokers: Consider a broker’s communication style, level of expertise and how they manage their clients’ needs.
• Interview the brokers: Ask plenty of questions and get a feel for how they work and whether they are knowledgeable about the sort of mortgage you’d qualify for.
• Speak with a former client: Ask them for a reference from a few former clients and make sure you speak with them directly.

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

Questions to ask a mortgage broker

• How much do you charge and who pays your fee? Broker fees can show up on the loan estimate or closing disclosure in several ways, so ask in advance to avoid surprises at closing.
• Which lenders do you work with? Most mortgage brokers have a stable of lenders they work with, and not all brokers work with the same lenders. Confirm the broker works with lenders offering the sort of mortgage products you’re interested in.
• How much experience do you have? As a rule of thumb, choose a mortgage broker who has been in the industry for at least three years. If you’re interested in a specific type of mortgage, ask how much experience the broker has with that kind of loan.
• Are you licensed to do business in my state? Check to see if a mortgage broker is licensed through the Nationwide Mortgage Licensing System and Registry. They should also have their NMLS registration number displayed on their website and email signature.
• Do you have references? Ideally, you have found your mortgage broker through a recommendation from a friend, relative or co-worker, but if not, it’s smart to check references.
• How do you handle rate locks? A rate lock guarantees you the interest rate you’re quoted for a certain amount of time, even if rates change. A typical rate lock lasts 30 days or 60 days. If the lender permits, you can add a “float down,” which guarantees you a lower rate if rates fall during your lock period.

Mortgage broker FAQ

• Can you get a mortgage without a broker?
  

  Yes, you can get a mortgage directly from a lender without a mortgage broker. You want to look for what’s called a “retail lender,” bank or financial institution, meaning it works with members of the public, as opposed to a “wholesale lender,” which only interfaces with industry professionals — mortgage brokers or other financial institutions. When you work with a retail lender, you’ll usually be assigned a loan officer, who’ll act as your contact and shepherd your application through.

• Do mortgage brokers have conflicts of interest?
  

  The potential for conflicts of interest does exist with mortgage brokers. Brokers are legally obligated to act in the borrower’s best interest. However, their fee is often paid by the lender. Always ask for transparency with a broker — that they share how they’re compensated and what their commission is from any lender whose loan they’re recommending.

• Is it better to go through the bank or a mortgage broker?
  

  If you want to compare loan types and rates from several different lenders, working with a mortgage broker can be beneficial. However, if you have a pre-existing relationship with a bank or credit union and you know what type of loan you want, working directly through the lender is more streamlined. Still be sure to shop around on your own, however, so you get the best deal.

• Are mortgage broker fees negotiable?
  

  You can try to negotiate broker fees. Compare fees from multiple brokers before you decide to work with one, and ask how they will be compensated. During that conversation, you can also ask to see a breakdown of their costs and try to negotiate them from that approach.