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Andrew Dehan writes about real estate and personal finance. His work has been published by Rocket Mortgage, Forbes Advisor and Business Insider. He’s also a poet, musician and nature-lover. He lives in metro Detroit with his wife and children.
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Kenneth Chavis IV is a senior wealth counselor at Versant Capital Management who provides investment management, complex wealth strategy, financial planning and tax advice to business owners, executives, medical doctors, and more.
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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.
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 loan 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,” explains Andrew Weinberg, principal at Silver Fin Capital Group in Great Neck, New York. “They can quickly determine the best lender for each individual borrower.”
| Mortgage broker | A mortgage broker matches borrowers with potential lenders and loans. Brokers partner with a variety of lenders, including commercial banks, credit unions, mortgage companies and other financial institutions, and can work independently or with a brokerage firm. |
| Mortgage lender | A mortgage lender is the party responsible for providing the funds to the borrower to purchase a home. |
| Loan officer | A loan officer is employed by a bank, credit union or other lender and is limited to providing the loan products their employer offers. Generally, loan officers act as the liaison between the institution and the individual borrowers assessing them, providing guidance with the application, etc.; sometimes the terms refer to someone who either authorizes or recommends approval for loans, though technically that’s the job of the underwriter. |
Both brokers and lenders “offer” loans. The main difference between a mortgage broker and a lender is that a broker doesn’t originate or fund mortgages. Instead, the broker shows the client various options and then works with the chosen lender on the borrower’s behalf to get the loan approved, closed and funded.
The duties of a mortgage broker and a loan officer are similar in that both help the borrower apply for a mortgage. 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.
Mortgage brokers act as agents for borrowers, working with many lenders to find them the best mortgage for their situation. Some lenders only work “wholesale” — that is, exclusively through other professionals, not directly with the public — so to have access to their mortgages, a borrower must go through a broker.
But a broker’s job doesn’t stop there. When you apply with a broker, they’ll do the legwork of submitting many applications to lenders for you. They’ll also be able to guide you away from lenders that may have extra fees or other expenses.
Mortgage brokers have a fiduciary responsibility to the borrower. This means that they’re required to work in the borrower’s best interest, not theirs or a lender’s.
Note that brokers do charge a fee that they’ll collect when the loan closes. Either you or the lender will pay it. Also, working with a broker does not guarantee that you’ll get a better deal than if you decide to go without one.
The broker’s commission (which is usually paid by the lender) varies, but it typically ranges 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 linked to a loan’s interest rate.
“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.”
“Prior to the [2008] economic downturn, consumers didn’t see how much a broker got paid, but in today’s mortgage climate, the cost of the loan is charged to the borrower and the lender purchasing the loan provides a credit equal to that cost, resulting in no cost to the borrower,” says Rick Masnyk, a branch manager at Network Funding in North Smithfield, Rhode Island.
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. Before you commit to working with a broker, ask about fee structure and what you might be responsible for paying, if anything.
A mortgage loan broker helps all kinds of borrowers get the best deal. This commitment can be especially useful for borrowers with unique circumstances, such as bad credit or a desire to purchase a certain type of property. In addition, a mortgage broker can help you find the best mortgage rate in a rising rate environment.
There’s no reason not to work with a mortgage broker, says Masnyk. Borrowers who use a mortgage broker get the benefit of a more personal experience and having a licensed professional do the legwork for them.
“Working with someone you can see face to face and/or someone your Realtor has used in the past and trusts is always a great source,” says Masnyk.
When deciding if a mortgage broker makes sense for you, consider the benefits and drawbacks of using one:
Finding a mortgage broker requires some homework. Here are steps you can take to make your choice:
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.
Some would say the potential for conflicts of interest exists with mortgage brokers. Brokers have a fiduciary responsibility to their clients: They are legally obligated to act in the borrower’s best interest. However, their fee is often paid by the lender, so (one might wonder): Who are they really working for? 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.
Andrew Dehan writes about real estate and personal finance. His work has been published by Rocket Mortgage, Forbes Advisor and Business Insider. He’s also a poet, musician and nature-lover. He lives in metro Detroit with his wife and children.
