What is a Mortgage Broker? 

Mortgage brokers are intermediaries who bring together mortgage borrowers and mortgage lenders, but they do not use their own funds to make mortgages. Mortgage brokers help borrowers connect with lenders and find the best solution based on the borrower’s financial situation and interest rate needs. Mortgage brokers also collect documents from borrowers and forward these documents to mortgage lenders for underwriting and approval. Brokers receive closing fees from borrowers, lenders, or both. 

Mortgage brokers should not be confused with mortgage bankers who complete and finance mortgages with their own funds.

KEY POINTS TO REMEMBER

• A mortgage broker is a financial intermediary that connects real estate borrowers with potential lenders to get the best mortgage terms possible for the borrower.
• A mortgage broker can save borrowers time and effort during the application process and can save a lot of money over the life of the loan.
• Mortgage brokers earn a commission, known as an initial fee, based on the size of the loan and may work independently or as an employee of a large mortgage brokerage firm.

How Mortgage Brokers Work

A mortgage broker acts as an intermediary between borrowers and lenders in the real estate market. Whether a prospective borrower is buying a new home or refinancing, the broker collects loan options from various lenders for the borrower to consider while allowing the borrower to negotiate a mortgage with those lenders. allow you to qualify. Agents also collect financial information such as income, assets and employment records. credit reports; and other information used to assess a borrower’s ability to raise funds are shared with potential lenders.

The broker determines the appropriate loan amount, loan-to-value (LTV) ratio, and ideal loan type for the borrower, and submits the loan to the lender for approval. Brokers communicate with borrowers and lenders from trade to closing.

Once an agreement is reached, mortgage funds are lent on behalf of the mortgage lender, and the mortgage broker collects a fee, known as an origination fee, from the lender as compensation for their services.

Borrowers may be responsible for paying all or part of this fee on their final report. Brokers are not paid until the loan transaction is completed. Borrowers should search online reviews and seek recommendations from real estate agents, friends and family to find a qualified mortgage broker that is appropriate for the borrower’s experience level. It’s important to work with someone you trust and who will provide you with excellent service.

Mortgage Broker vs Loan Officer

When a consumer buys or refinances a home, the first step is often to speak with a loan officer at a local bank or credit union. A bank loan officer offers mortgage and rate programs from a single institution. A mortgage broker, on the other hand, works on behalf of the borrower to find the lowest mortgage rates available and/or the best loan programs available from a variety of lenders. However, the number of lenders a broker can actually reach is limited by their approval to work with each lender. This means that borrowers are often best served by doing their own thing to find the best deal.

Brokers often work with multiple clients at once and don’t get paid unless a loan is made, which encourages the broker to work with each borrower on a more personal level. If a loan issued through a broker is declined, the broker will switch to another lender. A loan officer of a large bank can hold a borrower for a long time because the officer works with many borrowers at the same time. If a loan from a loan officer is denied, no further action will be taken by the bank. 

Some lenders work exclusively with mortgage brokers, allowing borrowers to access loans they would otherwise not be available. In addition, brokers can cause lenders to waive the application, due diligence, origination, and other fees. The big banks work exclusively with loan officers and are not free.