Mortgage brokers collaborate with a range of lenders and lending institutions to assist borrowers purchase or refinance homes. After collecting information about the borrower’s finances, credit history, and other factors they make loan recommendations which they then submit to potential lenders. They may also collect financial documents, complete preapproval applications, and offer insight into the local real estate market.
Brokers can assist you in finding mortgages with better terms and rates than what you could secure on your own or from a bank. They save time because they have access to more products and lenders than you might have access to on your own.
They can be especially beneficial to borrowers with difficult credit histories or special needs, such as self-employment or owning rental property. They have connections to lenders who specialize in these types of loans, often offering lower down payment requirements and accommodating credit policies.
Their fees should never be hidden, so you should inquire about them up front and understand how they’re paid before hiring a broker.
Fees vary between brokers, but are usually determined by the size of your home purchase and which lender you use. They can either be a flat rate or percentage of the loan amount; if the loan is larger, they may charge a higher percentage.
They may charge a fee for providing preapproval letters before you find a home, as well as if you apply for multiple mortgages with them.
Brokers can be invaluable if you need a speedy mortgage approval and want to bypass the lengthy application process with banks or other lenders. For instance, if you’re purchasing a home in an active real estate market and need to close on the house quickly before moving, a broker may be able to locate a lender who will approve your loan quickly.
However, if a broker receives commission from a lender, they may not always recommend the most advantageous loan option. This could mean suggesting an expensive mortgage that exceeds what you would actually pay for your home – placing your finances in jeopardy.
Some mortgage brokers provide a ‘borrower-paid fee schedule,’ in which the buyer pays part of the broker’s fees at closing. These costs are usually a percentage of the total mortgage amount and may be spread out over multiple months.
The borrower-paid fee schedule is less common than the lender-paid one, but it can still be an effective way to avoid having to pay a broker’s fee on top of other closing costs.
When working with a broker, be sure to inquire how their fees are calculated and if any additional charges have been added onto the overall loan estimate. Over time, these hidden expenses can accumulate and cause your mortgage closing costs to skyrocket significantly.
Mortgage brokers have a fiduciary responsibility to their clients and should only recommend loans that they believe are suitable for you. Even though they receive commission from the lender, their primary goal is always to assist you in finding an appropriate loan that meets both your goals and budget.