A mortgage broker is an independent contractor who acts as a middleman between borrowers and lenders. The broker is paid a fee, typically a commission based upon the amount borrowed, in return for finding the mortgage.
A mortgage broker can potentially help a borrower save money. A mortgage broker may review the terms of loans that are offered by a variety of lenders, then choose a mortgage that best suits the needs of its client. A mortgage broker should be able to help a borrwer find the best mortgage that is available, based upon the borrower's situation and needs.
While it is possible to investigate lenders without a broker, it takes time and energy to do so. You have to contact a variety of lenders, obtain information about their loan options, interest rates, fees and closing costs.
- Borrowers may find it difficult to understand and compare loan options, whether offered by a single lender or when comparing options available from multiple lenders. A mortgage broker should perform those tasks for the borrower.
- Some borrowers have a troubled credit history and may have difficulty finding a conventional mortgage or affordable loan. A mortgage broker maybe able to locate a mortgage lender that offers more favorable terms than the lenders the borrower can find without that assistance.
- Some borrowers are not comfortable contacting lenders to obtain information about their loan options or negotiating with lenders, and may prefer to have a mortgage broker perform those tasks.
- Some borrowers may want to borrow more money than they can obtain from their bank. For example, a borrower may want to place a smaller down payment on a home than their bank requires. A mortgage broker may be able to find a lender that will offer greater flexibility in the terms and amount of a loan.
A mortgage broker charges a fee for its services, as the broker is performing services which would otherwise be performed by employees of the lender. However, even after payment of that fee borrowers may still save money by using a broker.
- Assuming that the mortgage broker's fee is reasonable, the fee is often less than the lender would charge for those services.
- If the mortgage broker obtains a better mortgage terms or a lower interest rate than is otherwise available to the borrower, the broker's services may produce savings for the borrower.
In order to find a reputable mortgage broker and avoid problems and unexpected costs, borrowers may take the following steps:
Talk to several mortgage brokers, and compare their fees and experience. Ask them for references.
Understand your mortgage broker's fees
Find out what the fees will be 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 only 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.