Buying a new home is easily one of the most complicated events in a person’s life, and the mortgage application process is easily the most strenuous part—especially for first-time homebuyers.
Enter mortgage brokers!
But what does a mortgage broker do?
Unlike mortgage banks or loan officers, mortgage brokers don’t lend money directly. Instead, they negotiate on your behalf. A mortgage broker is a third-party intermediary or ‘middleman’ between a financial institution (or lender) which offers home loans, and a would-be homebuyer (or borrower) who needs one.
To put it simply, a mortgage broker is a financial expert who works with a variety of lenders in order to offer you as wide a range of loan programs as possible.
A mortgage broker’s main tasks include:
- Hunting down the best rates, terms, and lowest closing costs to meet your needs.
- Gathering and certifying all necessary paperwork (i.e. credit reports, bank statements, and employment history) required by your lender of choice.
- Anticipating difficulties that might arise during your application process with a given lender and counseling you on how to best circumvent them.
How a mortgage broker is paid
Some homebuyers believe mortgage brokers represent an extra cost, and so choose to avoid them. The buyer, however, does not pay a mortgage broker out-of-pocket. Rather, the lender pays a commission to the broker at closing. Typically, this commission makes up 1–2% of the loan amount. Although there is sometimes a small loan origination fee charged to the borrower, it is often folded into the loan amount, and is sometimes waived altogether by the broker as an added incentive to the borrower. In any case, the Consumer Financial Protection Bureau requires that brokers provide you with an itemized estimate, so there are no surprises.
The benefits of hiring a mortgage broker
Although some buyers worry that mortgage brokers might be biased due to existing relationships with lenders, and although some prefer to deal directly with the lender for expediency’s sake, many homebuyers still prefer to work with a mortgage broker.
- You only need to submit one loan application—your broker then takes charge of distributing it to different potential lenders, so ultimately you save on the cost of multiple applications.
- Mortgage brokers are versatile: they work with attorneys, underwriters, title companies, and even the sellers’ real estate agent to close a deal.
- Since they have regular contact with a variety of lenders (some of which you might not even know about), a broker can steer you away from the ones with questionable payment terms.
- Depending on a mortgage broker’s relationship with a given lender, they may be able to offer you special rates that are lower than what you would get dealing with the lender directly.
Bottom line: mortgage brokers offer potential homebuyers an invaluable service and take a lot of the complexity out of a process that is often overwhelming. That said, it never hurts to do your homework before landing on a broker: be sure they’re certified; always check out average mortgage rates online to do a comparison check; and seek out reviews of others’ experiences with the broker you’re considering.