Everything you need to know about mortgage brokers

Whether you’re buying your first home, a vacation house, or an investment property, you’ll probably need a mortgage loan. The question is: Where should you get it?

While going directly to a mortgage lender is an option, you might also consider a mortgage broker. Not sure what that is or if it’s the right fit? Here’s what you need to know to decide.

• What is a mortgage broker?
• What does a mortgage broker do?
• How much does a mortgage broker cost?
• Mortgage broker vs. loan officer: What's the difference?
• Pros and cons of working with a mortgage broker
• How to choose a mortgage broker

Let's start with the basics.

What is a mortgage broker?

A mortgage broker is more or less a personal shopper for mortgages. They work with dozens of lenders and banks and have many loan programs at their disposal.

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This allows them to get their customers the best-suited loan for their needs, as well as the best rates. (While the current average rate on a 30-year fixed-rate mortgage is 2.72%, not everyone will qualify for these. Rates vary greatly from one lender to the next — and one borrower to the next).

Here’s how Moira Taylor, CEO/owner of Taylor Made Realty and a former mortgage broker, explained it: “A mortgage broker brings mortgage borrowers and mortgage lenders together, but they do not use their own funds to originate mortgages. They help borrowers connect with lenders to secure the best fit in terms of the borrower's financial situation and interest-rate needs.”

What does a mortgage broker do?

Aside from shopping around for your home loan, mortgage brokers also help guide you through the mortgage process, communicating with your lender and even submitting documentation on your behalf. They can also answer questions, provide advice, and help troubleshoot should your loan hit any snags along the way.

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How much does a mortgage broker cost?

Mortgage brokers earn commissions — usually around 1% to 2% of the total loan amount. Some brokers get this commission from your lender; others get it from you (it’s rolled into your closing costs). In some cases, a broker may get paid by both parties.

Mortgage broker vs. loan officer: What's the difference?

The main difference between a mortgage broker and a loan officer is that one is tied to a specific mortgage lender, while the other is not.

Loan officers are paid by a certain bank or mortgage lender to originate loans on their behalf. A mortgage broker, on the other hand, can connect borrowers with loans from various lenders and, in many cases, help them find a better-suited (and more affordable) loan for their needs.

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Pros and cons of working with a mortgage broker

There are many benefits to using a mortgage broker. As Taylor explained, “A mortgage broker can save consumers time and money. They are mortgage experts who can provide access to different lenders, loan types, and rates for buyers. They also help move along the underwriting process, manage critical paperwork, and coordinate loan information with relevant parties, all of which can help you close your loan faster and get you into your new home.”

Pros

• Access to more loan options: Mortgage brokers aren’t tied to one mortgage lender or bank.
• Potentially lower rates: According to Freddie Mac, getting quotes from at least five lenders can save you a whopping $3,000.
• Faster closings: Brokers can help move the mortgage process along, potentially speeding up your time to close.
• Less hassle: You get help rate-shopping, submitting documentation, and working with your lender, making the process easier on the whole.
• Expert guidance: Your broker is there to answer questions and address any concerns along the way.

Cons

• Possible added cost: Depending on how your broker structures their commissions, it may cost you a bit to use one (though your rate savings may cover those expenses).
• Less contact with the mortgage lender: You won’t directly work with your mortgage lender or loan officer, which could cause confusion for some borrowers.
• Service isn’t always great: “It’s a competitive business, and brokers typically want to close as many loans as they can, as quickly as they can, so there’s a chance they might not always provide the best service — but that’s not always the case,” Taylor said.

Fortunately, using an online mortgage broker comes at no cost. You can also use an online mortgage calculator for free to set your homebuying budget.

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How to choose a mortgage broker

Just as you’d shop around for a mortgage lender, it’s important to shop around for a broker. Interview them, ask about their commission structure, and ask friends and family members for referrals. Be sure to check each potential broker’s online reviews, as well the Better Business Bureau for any complaints, too.

If you start working with a broker and find yourself unhappy, according to Taylor, you can always switch. “You're never locked into working with a mortgage broker, and you can change brokers if necessary.”

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