A mortgage broker is an intermediary that brings mortgage borrowers and mortgage lenders together but does not make use of their own funds to originate mortgages. The work of a mortgage broker is to connect with lenders and locate the best fit when it comes to the borrower’s financial situation and interest-rate needs.
Also, the mortgage broker gathers paperwork straight from the borrower and passes the paperwork along to a mortgage lender for underwriting and approval purposes. The broker would get a commission from either the borrower, the lender, or the two of them at closing.
How Mortgage Brokers Work
A mortgage broker basically serves as an intermediary between borrowers and lenders when it comes to the real estate market. The work of a broker is to gather loan options from several lenders for the person borrowing to consider while qualifying the borrower for a mortgage with those lenders at the same time.
The broker would also gather some financial details which includes income, assets, and employment documentation; a credit report and other information for assessing the borrower’s ability to secure financing that is later passed on to the potential lender.
After determining the borrower’s ideal loan type and the appropriate loan amount, the broker submits the loan to a lender for approval. The specialist speaks with the borrower and the bank during the whole exchange through shutting.
Advantages of Using a Mortgage Broker
A broker can assist a client with fee management concerning their desire to obtain a mortgage or approach a new lender. The fees include application fees, potential appraisal fees, and origination fees (which can be anywhere between 0.5% to 1% of the loan amount).
The broker saves their client work and time because they usually possess a great deal of information about lenders, repayment terms, and administrative fees or other fees that can be disguised in their contracts. However, borrowers are still encouraged to perform their own research.
Brokers tend to be well acquainted with lenders and are trusted by lenders. This makes the process easier because some lenders prefer to work only with clients. Brokers can also obtain good rates from lenders because they bring in clientele for the lender.
Disadvantages of Using a Mortgage Broker
A broker might not always get you the ideal financing for their clients, and sometimes, lenders tend to offer the same rates to the broker, as they would be offering other clients.
Seeing as brokers usually obtain a fee from a lender for the business, they brought in, they might not always keep the best interest of their clients. The compensation usually varies from lender to lender; thus, the broker would be able to bring out a deal that would boost their compensation.
The fees that the brokers would get sometimes would also be paid by the client. Also, it can mean that the loan would be expensive for the client. Some lenders also do make use of brokers.
Loan Officers vs Mortgage Brokers
Loan officers are usually associated with one institution. They offer mortgage loan deals and rates from the institution they are tied to.
Mortgage brokers, on the other hand, search for a lender who meets the client’s requirements on their behalf. For the client, they screen various options. However, it is essential to keep in mind that not all lenders will collaborate with a broker.