Mortgage Brokers: What They Are and How to Find One
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When financing a home purchase, a mortgage broker can help you find a lender with the best mortgage for your needs, secure a competitive interest rate and save you time and money.
While a mortgage broker isn’t essential to the homebuying process, you may find their guidance helpful.
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What is a mortgage broker, and what do they do?
According to Freddie Mac, borrowers who shop around for their mortgage save an average of $600 to $1,200 per year, which can amount to tens of thousands of dollars over the life of your loan.
However, applying with a wide pool of lenders requires time and organization. A mortgage broker is a licensed professional who operates as a middleman between you and mortgage lenders, streamlining the process by applying on your behalf and narrowing your choices to the best rate offers.
You’re not required to work with a mortgage broker — it’s simply an option at your disposal in the loan shopping process.
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If you choose to use a mortgage broker, they will verify your income and employment, review your credit history and use copies of your documentation to solicit quotes from lenders. After you’ve made your loan selection, the broker may continue to work with you through underwriting and closing. For example, they might ask you for additional documentation that the lender needs to keep the process moving smoothly.
Mortgage brokers don’t originate loans themselves or have any role in your approval, but they can help you find a loan that fits your needs at a preferable interest rate.
Should I use a mortgage broker?
Whether or not you use a mortgage broker is entirely up to you. Some scenarios where a broker may be useful include:
A high interest rate environment. If affordability is an issue, a mortgage broker may help you find a loan with comfortable monthly payments.
Buying a home for the first time. If you’re new to the world of home loans, it could be helpful to work with an experienced broker who can guide you through the process.
Specific loan needs. If you have unique loan preferences — for example, if you’re looking for a jumbo loan or are self-employed — a mortgage broker can help tailor your search.
How to find a mortgage broker
As with any important financial decision, thorough research is the first step to choosing wisely. Here's how to get started:
Reach out to friends and family. Ask your family and friends if they have used a mortgage broker. Were they satisfied with the service they received? Was the broker knowledgeable and attentive?
Get referrals from your real estate agent. Your real estate agent should have a pulse on mortgage brokers in your area and be able to recommend qualified individuals. Real estate agents make a commission after a home is sold, so they have a vested interest in recommending a good broker.
Read online reviews. Read reviews on trusted platforms like Google or Yelp to get a better understanding of the kind of experience you could expect from your candidates. For example, how long did it take for a customer's loan to be approved? If there were any stumbling blocks in the transaction, how did the mortgage broker deal with them? You should also pay attention to what reviewers say about the mortgage broker's communication, organization and problem-solving.
You can verify a mortgage broker's license by checking your state regulator or the Nationwide Mortgage Licensing System & Registry. The Better Business Bureau can also indicate if there have been complaints about the broker and whether those issues were resolved.
Questions to ask potential mortgage brokers
As you narrow your mortgage broker selection, the following questions can be helpful in making your decision.
What types of products do you offer? One benefit of working with a mortgage broker is that they partner with many lenders and provide borrowers with various mortgage options. But just as with a lender, a mortgage broker may not have access to every loan type. So if you are interested in a specific one, make sure the broker offers that option.
Which lenders do you work with? A mortgage broker may work with a set of preferred lenders, potentially limiting the savings you could expect from shopping around yourself. Some lenders don’t work with brokers at all, meaning it may be in your interest to do some lender research on your own. If you want a connection to a specific lender, make sure your broker can offer it or point you in a similar direction.
What are your fees? Mortgage brokers are required to disclose their fees. Typically, they are paid 1% to 2% or more of the loan amount. Mortgage brokers can be paid by either lenders or borrowers, but they can't be paid by both parties. If the borrower pays the fee, it can be paid upfront or rolled into the loan amount. You can avoid mortgage broker fees if you choose not to work with a broker and instead find a lender yourself.
Have you worked with borrowers in my situation? Find out if the mortgage broker has experience with borrowers who match your specific needs, such as having bad credit or wanting a particular type of loan. Of course, there's no guarantee the mortgage broker will get you the best deal, but if they're familiar with your situation, they might suggest money-saving options you haven’t considered.
Pros and cons of working with a mortgage broker
There’s no inherently right or wrong decision when it comes to working with a mortgage broker, and there are benefits and drawbacks of each choice.
Overall mortgage savings. A mortgage broker can help you find the lowest rate option, which may come from a lender you wouldn’t have researched on your own.
Convenience. Mortgage brokers save you the work of filling out multiple loan applications yourself.
Expertise. A mortgage broker can add additional experience to your home buying team and help navigate any hurdles along the way.
Fees. You’ll likely have to pay around 1% to 2% of the total cost of the loan in broker fees, which you’ll want to factor against your potential interest savings.
You don’t need one. Mortgage brokers don’t necessarily do anything that you couldn’t do yourself, provided you have the time to research lenders and apply on your own.
Brokers can be biased. Your mortgage broker isn’t going to pursue every available option. Rather, they will have an existing portfolio of lenders, which may not necessarily include the lender with the lowest possible interest rate.
Mortgage brokers vs. loan officers
Mortgage brokers and loan officers are not terms that can be used interchangeably, as they have very different roles.
A mortgage broker is a third party that connects you with mortgage lenders. Once you start working with a lender, the representative that begins the origination process is your loan officer. If you choose not to work with a broker, you’ll be connected directly with a loan officer after you fill out your own mortgage application.
Unlike mortgage brokers, loan officers will only present mortgage offers from the lender that employs them.
What to do before working with a mortgage broker
A mortgage broker can make getting a home loan easier by connecting you with a lender. But you can also make the entire process smoother by ensuring you are financially prepared before selecting your mortgage broker.
To get started, pull your credit report. You can access yours from all three credit reporting bureaus — Experian, Equifax and TransUnion — at AnnualCreditReport.com for free every year.
It also helps to familiarize yourself with some common types of loans to get an idea of what may be a good fit. Do you have limited savings for a down payment? Maybe a loan insured by the Federal Housing Administration — called an FHA loan — is right for you. Do you prefer an aggressive strategy for paying down debt? You may want to consider a 15-year loan. The more you know about what you want and what you can realistically afford, the more productive your conversations with the mortgage broker can be.
A home affordability calculator that considers your income, debts, and how much money you have for a down payment can help you set a realistic budget.
You can also begin compiling documentation the broker may need. These documents may include personal information such as your Social Security number, state-issued ID and financial information including recent bank statements, tax returns and W-2 forms.
Choosing the right lender can ensure you get the best available deal on your mortgage. A knowledgeable and experienced broker who understands your needs can present a range of options for you to compare, making the mortgage application process much smoother and potentially saving you thousands of dollars over the course of your loan.
