If you have ever shopped for a mortgage, you likely already know that finding the very best lending option is time-consuming and challenging. In the current market, securing a mortgage at a low rate is particularly challenging. Fortunately, mortgage brokers are trained to help consumers navigate the mortgage market and are especially well-equipped to do so when market conditions are unfavorable to consumers.
What is a Mortgage Broker?
By definition, mortgage brokers are intermediaries who help connect borrowers (consumers shopping for mortgage products) and lenders (banks and credit unions that originate home loans). While one never needs to work with a mortgage broker, doing so can be highly advantageous to the average buyer.Advantages of Working with a Mortgage Broker
There are many reasons to consider working with a mortgage broker, especially when interest rates are high and options are limited.Time Savings
First, mortgage brokers can save consumers considerable time. With hundreds of lending products to choose from, it can take the average consumer weeks to compile a list of lending products for which they are eligible. Mortgage brokers not only do this work on behalf of consumers but also frequently know about mortgage products that aren’t fully visible or even available to the average consumer.
Access to a Wider Range of Lending Products
Since some lenders only work through mortgage brokers, brokers often have access to lending products that consumers can’t access directly. Often, these products also offer distinct advantages to consumers (e.g., lower origination fees).
Additional Cost Savings
Beyond having the knowledge and connections needed to help consumers find the lowest interest rates for which they are eligible based on their creditworthiness, mortgage brokers can also help consumers save money on two other levels. First, since shopping for a mortgage is their full-time job, they are constantly watching rates and are generally also better equipped than the average consumer to predict where the market is heading. As a result, they are often able to help consumers lock into deals by securing a mortgage on the right day at the right time. Second, mortgage brokers can help waive or lower closing costs, including originating, application, and appraisal fees. Finally, mortgage brokers can help consumers understand and take advantage of other cost-saving opportunities, including purchasing points upfront to help lower the interest rate on their mortgage.
Financial Education
Another often unappreciated reason to work with a mortgage broker is financial education. Especially for first-time buyers, the experience of working with a broker can make the process of preparing and applying for a mortgage much easier. After all, while it is often challenging to get into touch with loan officers at a bank or credit union, mortgage brokers are in the business of supporting clients and are readily available to respond to even small questions about the loan application process.
Beyond having the knowledge and connections needed to help consumers find the lowest interest rates for which they are eligible based on their creditworthiness, mortgage brokers can also help consumers save money on two other levels. First, since shopping for a mortgage is their full-time job, they are constantly watching rates and are generally also better equipped than the average consumer to predict where the market is heading. As a result, they are often able to help consumers lock into deals by securing a mortgage on the right day at the right time. Second, mortgage brokers can help waive or lower closing costs, including originating, application, and appraisal fees. Finally, mortgage brokers can help consumers understand and take advantage of other cost-saving opportunities, including purchasing points upfront to help lower the interest rate on their mortgage.
Financial Education
Another often unappreciated reason to work with a mortgage broker is financial education. Especially for first-time buyers, the experience of working with a broker can make the process of preparing and applying for a mortgage much easier. After all, while it is often challenging to get into touch with loan officers at a bank or credit union, mortgage brokers are in the business of supporting clients and are readily available to respond to even small questions about the loan application process.
Disadvantages of Working with a Mortgage Broker
Despite the many advantages of working with a mortgage broker, there is at least one reason to proceed with caution. Mortgage brokers are paid by commission. Because mortgage brokerage is commission-based work, the more expensive the loan, the higher commission for the broker. As a result, there is always a risk that an unethical broker could choose to direct clients toward more expensive loans. That said, such behavior is highly rare and directly contradicts the National Association of Mortgage Brokers’ Code of Ethics. Still, this raises a critical question—how and where can you find a reliable mortgage broker?Finding a Mortgage Broker
There are three common ways to find a mortgage broker. The first and most reliable approach is to ask your real estate agent for a referral. Most agents work closely with mortgage brokers and regularly refer clients to mortgage brokers. Another way to ask friends and family for a referral. When people have a good experience with a mortgage broker, they are usually more than happy to do a referral. If you can’t get a direct referral, however, do the next best thing—an online search. Whether you get a direct referral or find someone online, also take time to carefully vet the potential broker, reading any available recent reviews.Mortgage Broker Fees
You never pay a mortgage broker upfront, but in some cases, a borrower may pay all or part of the broker’s fee, which ranges from one to three percent and can’t legally exceed three percent. In the vast majority of cases, however, the lender, not the borrower, pays the commission. Given the potential savings associated with working with a mortgage broker and the fact that commissions are generally covered by the lender, in most cases, consumers have much more to gain than lose from working with a broker versus negotiating directly with a lender.
Contributing Writer
Cait Etherington
Cait Etherington has over twenty years of experience working as a journalist and communications consultant. Her articles and reviews have been published in newspapers and magazines across the United States and internationally. An experienced financial writer, Cait is committed to exposing the human side of stories about contemporary business, banking and workplace relations. She also enjoys writing about trends, lifestyles and real estate in New York City where she lives with her family in a cozy apartment on the twentieth floor of a Manhattan high rise.
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