Using a Mortgage Broker
By Aaron Larson
A mortgage broker is an independent contractor who acts as a middleman between borrowers and lenders. A good mortgage broker will be able to check available loans from a variety of lenders, and can seek out a mortgage which best suits the needs of a particular client. A good mortgage broker will assist a borrower by locating the best available mortgage which meets the borrower's needs and circumstances. The broker is paid a fee, typically a commission based upon the amount borrowed, in return for finding the mortgage.
Some people don't want to spend the time and energy seeking out the best mortgage, by contacting a range of lenders, obtaining information about interest rates, fees and closing costs, and comparing available loans. A mortgage broker should perform those tasks for you.
Other people may have troubled credit histories, which make it difficult for them to locate reasonably priced credit. Sometimes a mortgage broker will be able to locate a lender who offers better terms than they can find on their own.
Additionally, some people may want more flexibility in the amount they borrow than is offered by their bank. A mortgage broker may be able to accommodate that desire, by finding them a lender which will, for example, lend them money with a lower down payment than their bank demands.
Yet others may not feel comfortable negotiating with lenders, and may prefer to have a mortgage broker perform that task on their behalf.
Although the mortgage broker charges a fee for this service, most borrowers will still save money by using a broker, as the broker is performing services which would otherwise be performed by employees of the lender. Assuming that the mortgage broker's fee is reasonable, the fee is often less than the lender would charge for those services. Assuming the mortgage broker also obtains a better rate than is otherwise available to the borrower, there are again cost savings to the borrower.
Shop Around - Talk to several mortgage brokers, and compare their fees and experience. Ask them for references.
Understand your mortgage broker's fees - And get them in writing! A mortgage broker typically obtains a "wholesale" price from a lender, and is free to set any "retail price" at which the loan will be offered to the borrower. The broker's fee will be the difference between the wholesale and retail price of the mortgage. Unless otherwise agreed, a mortgage broker will typically "mark up" or increase the cost of a loan, perhaps by adding points to the loan, in order to get the highest possible fee. Mortgage brokers are more apt to be able to charge excessive fees when they are working with borrowers who aren't consulting competing brokers, and who haven't otherwised tried to determine the cost of obtaining a similar loan without the assistance of a broker.
Read your agreement - Make sure that the promises your mortgage broker makes to you are the same as what is written in your contract with the broker. If you are seeking a home mortgage, don't let the mortgage broker mischaracterize the loan as "for business purposes" - any mortgage broker who does that is probably trying to avoid the application of consumer protection laws, or to secure a higher fee.
Be honest in your loan applications - Don't let a mortgage broker misrepresent your financial circumstances or any other information to lenders.
Verify your "bargain" with other lenders - Go back to your bank or another lender with your mortgage broker's best offer, and see if they will meet or beat that deal.
Borrow what you need - Recall that in a typical arrangement, the more you borrow the greater the mortgage broker's commission. Don't let the mortgage broker pressure you into borrowing more than you actually need.
It's not the promise that counts - If your mortgage broker promises you a great deal or exceptionally low interest rate to entice you to sign on, but can't deliver on those promises, consider switching to a different broker before making any further commitment.
Monitor interest rates - If interest rates decline between the time you lock in your rate and your closing, ask for a lower rate. To best protect yourself, you should have your broker commit in advance that, if lower, you will pay the lock rate which would be offered to a new customer on the date of the closing.
Get written confirmation of a lock - If your mortgage broker charges you a fee to lock in a particular interest rate, have the broker provide you with a copy of a written commitment from the lender. Some mortgage brokers have been known to pocket the lock fees.
Read the loan agreement - Make sure that the loan you receive is the same as what the broker promised.
Copyright © 2004 - 2011 Aaron Larson. All rights reserved. No portion of this article may be reproduced without the express written permission of the copyright holder. If you believe you may lawfully use a quotation, excerpt or paraphrase of this article under the Fair Use exception to copyright law, except as otherwise authorized by the author of the article, you must cite this article as a source for your work and include a link back to the original article from any online materials that incorporate or are derived from the content of this article.