Taking your first steps into home ownership is an exhilarating, life-changing moment. But to get there, you’ll need a team of experts helping you through a complex — though rewarding — home-buying process, they are the mortgage broker.
In addition to your realtor and your mortgage lender, another essential member of your home-buying squad is your mortgage broker. This is the person who will help you find the right mortgage loan in the first place and ensure you get a good deal.
But what else do mortgage brokers do? Are they really essential to the process? What do they cost and how do you find one that has your best interests in mind?
Erika Taught Me
- A mortgage broker acts as a middleman connecting borrowers to mortgage lenders.
- Mortgage brokers help you determine what kind of mortgage is best and whether you qualify for a financially-assisted loan.
- Brokers typically do not charge buyers a fee. The lender you eventually go with will typically pay the broker a 1% to 2% commission on the loan amount.
- Using a mortgage broker isn’t required, but it’s strongly recommended (some even say necessary) since most brokers are free-to-use and can save you a huge time, stress, and money.
What is a mortgage broker?
A mortgage broker is a professional who connects mortgage borrowers with mortgage lenders. They’re middlemen, more or less, but not the kind you’ll want to skip just to save money.
That’s because a good mortgage broker does far more than introduce you to a mortgage lender. They’ll also assess your financial situation, make tailored suggestions on which mortgage is best, help you score a great rate, and even help you gather all the necessary paperwork so you can close on time.
What does a mortgage broker do?
Essentially, mortgage brokers work as your personal mortgage advocate, guiding you all the way from wanting a home to closing on your mortgage. They take the complicated mortgage process and break it down into individual pieces, helping you secure the right mortgage at the right interest rate with the right lender.
“A good mortgage broker basically takes your info, and based on their knowledge and tenure and experience, puts you in the best loan program for your financial situation,” Jonathan Harris, a mortgage advisor at Pinnacle Financial Partners told us.
Here are the specific steps of the mortgage process that a broker can guide you through:
- Assessing your personal financial situation and interest needs
- Running your credit score to verify your income, expenses, and assets
- Suggesting a specific type of mortgage to fit your needs
- Connecting you with state or federal mortgage programs where applicable
- Getting you preapproved so you can begin making offers on homes
- Working with multiple lenders to find you the best possible deal and a low interest rate
- Helping you crunch the numbers to determine the best combination of down payment and discount points (which is like prepaid interest)
- Helping you collect and organize the necessary documentation to apply for your mortgage
- Working with your lender and realtor to help you close the deal
To cap it all off, some mortgage brokers will even join their clients at closing, just to ensure everything goes smoothly and you get the keys to your new home.
While mortgage brokers are helpful and multi-talented, they’re still just one player in the overall loan process. To illustrate, what exactly separates mortgage brokers from lenders or loan officers?
What’s the difference between a mortgage broker, lender, and loan officer?
When you’re applying for a mortgage, terms like these can quickly get confusing. So here’s a quick breakdown of all three members of your loan squad.
- A mortgage broker is a person or business that connects you, the borrower, with the right mortgage lender. Mortgage brokers review your finances, assess your options, support you throughout the application process, and help you close on your loan. They can’t, however, approve or deny your loan because they’re not the ones with the money — the lenders are.
- A mortgage lender is not a person, but a financial institution like a bank or a credit union that either approves or denies mortgage loan applications. A good broker will typically have an established relationship with multiple mortgage lenders at once.
- A loan officer is a human employee who works at a lender. When you choose to go with a certain bank, credit union, or other financial institution, they’ll assign you a loan officer who receives your application and either approves or denies your mortgage loan.
At this point, you might be wondering why you need both a mortgage broker and a loan officer to help you get a mortgage.
It’s important to remember that your broker’s job is to help you find the right lender in the first place. Loan officers can walk you through the various mortgage options their employer offers, but they can’t recommend another lender. Mortgage brokers are the ones helping you shop around, to begin with.
Hopefully, by now you see the value of working with a mortgage broker. Putting everything else aside, a mortgage broker’s job is to help you get a better deal on a mortgage than you’d be able to find on your own.
What does a mortgage broker cost?
Mortgage brokers typically charge between 1% and 2% of the total loan amount as commission. So on a $350,000 mortgage that would be between $3,500 and $7,000.
But before you get sticker shock, know that you’re typically not the one footing the bill. In the vast majority of cases, the lender pays the mortgage broker’s fee, not the buyer.
“The cost to you is generally zero,” says Harris. “Most mortgage brokers make 1% of the loan amount on the deal, and that’s all wrapped into the closing costs.” But make sure you are clear on how the broker will be paid before you begin.
Is it worth using a mortgage broker?
Yes, especially if you’re a first-time homebuyer.
A good mortgage broker can not only save you tons of time and stress — they can help you secure a great deal on a mortgage that saves you thousands at closing and tens of thousands over the life of the loan.
Some loan experts even consider the use of mortgage brokers to be essential.
“Basically, you have to have one,” says Harris. “You would not save any money by not using a mortgage broker.”
But what if you use a direct lender like Rocket Mortgage? Wouldn’t that eliminate the need for mortgage brokers?
“Funny thing is, even the online guys like Quicken and Rocket use brokers in the background,” says Harris.
To be clear, there’s nothing wrong with going straight to Quicken Loans or Rocket Mortgage. But the value of using a broker is that they’ll help you collect additional quotes from a wider selection of lenders — one of which may offer an even better deal. So you have a lot to gain from using a mortgage broker and nothing to lose.
So how do you go about finding a good mortgage broker to help you through the process?
How to find the right mortgage broker
While Google and LinkedIn are always helpful, the most common and effective method of finding a good mortgage broker is also the most old-school.
“Word of mouth,” says Harris. “Something like 38% of home buyers find their mortgage brokers through friends and family who say they had a good experience.”
Consider asking folks who bought a house within the last two years who they used as a broker and whether they’d recommend them. In my personal experience, folks who liked their broker will tend to gush about them, since truly great mortgage brokers take a ton of weight off your mental and financial plate.
That being said, it’s still good to vet any recommended mortgage brokers by asking them a series of tough questions. And don’t worry — if the thought of grilling someone makes you feel uncomfortable, you should know that an experienced mortgage broker will be glad you asked.
Questions to ask a mortgage broker before hiring them
Here are some questions to ask a potential broker (and why they matter):
- What is your fee structure? In rare cases, some mortgage brokers charge the buyer a fee, so you’ll definitely want to know that on the front end.
- Who are your preferred lenders? A good mortgage broker will work with multiple lenders at once. If they struggle to list more than one or two lenders, they may not be searching as far and wide as they should.
- How do you handle rate locks and float downs? Some lenders offer rate locks, which lock in your interest rate between application and closing. If rates drop during closing, a float down lets you take advantage of the new, lower rate. Asking this question shows that you’re an informed consumer, and an experienced broker should have a quick and fluid answer.
- Are you accessible during nights and weekends? When working with a mortgage broker, you’ll unquestionably want someone who’s full-time (the same goes for your real estate agent). Ideally, they’ll be available in emergencies, too, such as your lender demanding more paperwork days before closing.
- How long have you been in the business? What sounds like a causal icebreaker is actually the single most important question you’ll ask. “There were a lot of folks who got into the business two to three years ago just to do refinances. But they don’t have experience in a buyer’s market, which is a much more stressful situation,” says Harris. “Experience is huge. There’s going to be a 50% attrition rate in the mortgage business this year. The same situation happened in 2008.”
In the end, a recommended broker who gracefully navigates these questions is probably worth building a relationship with.
While you may not need a mortgage broker, using one is strongly recommended since it can make a complex process vastly easier. A good mortgage broker will find the right mortgage/lender fit for your finances and save you a huge time, stress, and/or money in the long run.