More than half of all mortgages in the United States are originated through mortgage brokers. The best mortgage brokers will have partnerships with many wholesale lenders and will have the ability to close all types of loans even for borrowers who have credit and income challenges.
What is a Mortgage Broker?
A mortgage broker is a third party entity that helps consumers to shop for a mortgage and originate the loan for them. Brokers will have licensed loan officers, processors, and others in the organization to help with your mortgage.
Brokers have access to make lenders and rates to help find the best program and offer for you. Some of the lenders that brokers work with do not work directly with consumers. This means, if you can only have access to their rates if you are working through a broker.
Today’s regulations help to create an environment where brokers will make the same regardless of which lender they pair you with. Therefore, there is incentive for them to
Is it Better to Work With a Mortgage Broker or a Bank?
There is confusion whether it is better to work with a mortgage broker or a bank and some believe you may get a better deal going to a bank.
If you are applying for a mortgage with a bank, you will only have access to their rates, programs and fees. It is a single lender and the loan officer is limited to what that lender can offer.
Loan officer education and training is typically set at a higher standard for loan officers who work for a broker versus loan officers who work for a bank. Loan officers who work for a bank are required to take their 20 hour SAFE course and pass the national mortgage licensing exam. Once they do that, they are permitted to originate loans in every state where the bank is licensed.
Loan officers who work for a broker must get licensed in every state where they plan to do business and in some instances must also take a course and pass an independent test for each state.
When working with a broker, they have the ability to shop for the best program and rate through various lenders who may only work through brokers. Often times you can get a better deal through a broker versus a bank but it is important to understand what is most important for you and what your long term plans are for the home.
We feel it is better to work with a broker versus a bank due to the increased number of options and flexibility that a broker has.
How to Choose a Mortgage Broker
A mortgage broker is only as good as their loan officers, processors, and wholesale lenders they work with. Before you choose a mortgage broker, determine what type of mortgage you need based upon your situation.
Do you need a broker who specializes in poor credit, bankruptcies, or reduced documentation? Do you need to work with someone who has an understanding of VA or USDA loans? Not all brokers can help you with a construction loan or rehab loan.
If you are looking to purchase investment properties then you will want to find a broker who has experience with those types of loans.
Once you understand the type of loan you need, then interview brokers and choose the one who is best suited to help with the type of loan that you need.
List of The Best Mortgage Brokers
This list is an example of some popular mortgage brokers that you may have to choose from. Keep in mind there are many brokers out there and you will need to interview a few of them before making your decision. We know which brokers are best suited for the type of loan you need. Therefore, complete this short form and we will let you know who we recommend for you.
What Should You Not Say to a Mortgage Broker?
While others may provide you with a list of things you should not say to a mortgage broker, we are going to recommend just one thing that you should not say…..Anything untruthful.
Your mortgage broker is your advocate and is trying to help with your mortgage. They are not the enemy that is trying to find ways to deny your loan application. Remember they do not get paid unless your loan closes.
If you are not upfront and truthful about everything, you could hurt yourself in the end because the loan application and underwriting process usually reveals the truth anyway. If you share everything with your mortgage broker, they can find a way to get your loan approved within the lending guidelines. The last thing you need is to go through the process, pay for the appraisal and inspection only to have your loan denied at the end because the thing you were trying to hide finally was revealed.
Who Pays the Mortgage Broker?
Mortgage brokers can be paid in multiple ways depending upon the type of loan you are applying for. If the mortgage is “lender paid”, the broker is paid on the back end by the wholesale lender who is actually financing the loan. However, if the mortgage is “borrower paid”, then the borrower pays for the broker’s compensation.
In most instances, conventional, FHA and VA loans are all lender paid unless you are paying points to buy down the rate. For some of the creative loan programs such as non-QM loans and bank statement loans, they are almost always borrower paid.
Lender fees are always paid for by the borrower unless the seller or real estate agent have agreed to cover those costs.
How Much do Mortgage Brokers Make?
On average, mortgage brokers make 2.75% of the loan amount and in most instances, that is paid to the broker by the wholesale lender. For loans that are “borrower paid”, the 2.75% is paid by the borrower at closing.
When a broker charges discount points, that is used to offset the back end commission they are losing for locking your loan at a rate that is below the current market.
Lender fees are not always profit because they have real costs for overhead such as processing and underwriting. It is important to understand that if you are looking for a mortgage with no fees or costs, then your rate is going to be higher than what it could be if you were to pay for those fees.
Benefits of Using a Mortgage Broker
From our perspective, the primary benefits of using a mortgage broker include having flexibility, a wide array of products, and being able to shop for the best rate. A few professionals in the industry have provided some feedback and comments about the benefits of using a mortgage broker.
Bill Gassett of Maximum Real Estate Exposure in Massachusetts says “The benefit of having a mortgage broker is having someone who can seek out the best mortgage program for your needs without being locked into limited options from one lender.“
Paul Sian of United Real Estate Home Connections has provided us with this feedback… “By working with a mortgage broker home buyers can get competitive mortgage rates from a variety of different lenders. In this high interest rate environment find the best mortgage rate now can mean plenty of savings over the life of the mortgage.”
Gustan Cho from Gustan Cho Associates (Mortgage Broker) adds… “Mortgage brokers have access to more loan options and better rates than mortgage bankers because they can partner with dozens of wholesale lenders.”
Alex Capozzolo of Brotherly Love Real Estate says “When juggling multiple real estate investment opportunities, working with a mortgage broker has been extremely helpful. They’ve been able to direct me to the right loan product for each investment. I highly recommend working with one. They’ll save you tons of time from researching and calling mortgage companies individually.”