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Mortgage Brokers: What They Do and How to Choose One
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With access to dozens of different lenders, mortgage brokers can shop for multiple rate quotes at once or find a variety of loan programs for complicated credit or income histories. Working with a mortgage broker can save you time, money and hassle while helping you find the best loan for your situation.
In this article:
- What is a mortgage broker?
- What does a mortgage broker do?
- How do mortgage brokers get paid?
- The difference between a mortgage broker vs. a bank
- Do I need a mortgage broker?
- How to find a mortgage broker near me
What is a mortgage broker?
A mortgage broker is a licensed financial service provider who works with a variety of lenders to find the best interest rate and loan program to fit a borrower’s needs. Mortgage brokers don’t actually lend money; they only find lenders to match you with.
To get a home loan broker license, an individual has to take federally mandated education courses, undergo a rigorous criminal and credit background check and pass a national test. Home loan brokers also have to meet the licensing requirements of each state they do business in, which may include providing personal financial statements.
All brokers (and the mortgage loan originators, or MLOs) who work for them must be licensed through the Nationwide Mortgage Licensing System Federal Registry (NMLS). They take continuing education courses and must renew their licenses annually in each state they do business.
What does a mortgage broker do?
Mortgage brokers work with a variety of banks and lenders to provide multiple lending options to their customers. They have to be approved with each lender they do business with, and comply with all federal and state lending guidelines for mortgage lending.
An MLO working for an independent mortgage broker is also familiar with the products and interest rates of several different lenders, giving a customer more choices than they’d get by shopping just one mortgage bank. MLOs continuously monitor the interest rates and programs of multiple lenders, saving you time and money you would’ve spent shopping around yourself.
How do mortgage brokers get paid?
Mortgage brokers receive a fee for their services, usually based on a fixed percentage of your loan amount. Brokers can be paid directly by the customer or by the lender — but never by both.
“Compensation can range between 0% and 2.75% on a mortgage broker-related transaction,” said Valerie Saunders, executive director of the National Association of Mortgage Brokers (NAMB).
Broker compensation must be disclosed on the loan estimate and closing disclosure forms you receive during the mortgage process. Federal law is crystal clear about how a loan originator can be paid, and brokers must follow stringent compensation guidelines, including:
- The commission percentage can’t be hiked based on the terms of the loan or loan type.
- A broker can’t be paid extra by charging a higher interest rate.
- A broker can’t be paid for referring a borrower to an affiliate (such as a title company).
The difference between a mortgage broker and a bank
If you want to have a wider array of loan options to choose from without the extra legwork of applying with multiple lenders on your own, a broker might be the way to go. A broker can also help if you have a unique income or credit scenario that a mortgage bank can’t accommodate. A broker can submit your credit file to several different sources to see what alternatives might be available.
The biggest benefit of working with an independent broker is that if your loan is denied by one lender, the loan officer can immediately submit your application package to other lenders so you don’t have to start over.
Working with a broker is really no different than working with any other home loan professional, as far as the loan process is concerned. You’ll apply for a mortgage, provide supporting documentation, receive a loan estimate and follow the same process to close as you would with a mortgage bank. Mortgage brokers and banks both follow the same federal rules to verify that you’re able to repay your loan.
Do I need a mortgage broker?
Many people choose to work with a broker because they want or need the freedom to get multiple rate quotes without having to do the heavy lifting themselves. Here are some reasons to consider working with a broker.
- You want to shop for the best interest rate. Local brokers compare the rates and incentives of several different lenders at the same time to find special pricing options you can lock-in. This is helpful because interest rates change daily.
- You have a complicated credit history. Not all lenders will offer home loans for people with bad credit. Because of the relationships home loan brokers have with multiple lenders, chances are better they can find a loan program for borrowers with lackluster credit profiles.
- You have complicated sources of income. Self-employed and commissioned-income borrowers may find it hard to get a loan depending on the complexity of their taxes. A broker may have access to programs that permit reduced or alternative documentation for smoother approval.
- More access to different loan programs. Mortgage banks often specialize in particular loan programs and are limited to their own offerings. An experienced broker keeps track of multiple lenders’ loan products to match you with the best loan for your needs.
How to find a mortgage broker near you
The best place to find a broker near you is to ask for referrals from friends and family. Once you get a few recommendations, check the NMLS Consumer Access portal to ensure they’re current on their licenses. Additionally, check with your state regulator to see if any brokers you’re considering have had past disciplinary actions.
Local brokers tend to advertise online and on social media, so check Google Reviews, Yelp, the Better Business Bureau or the broker’s Facebook page for reviews from past customers.