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What Is a Mortgage Broker?

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Applying for a mortgage is stressful. Even after hours of searching for the best lenders, you could miss out on the lowest mortgage rates -- a costly mistake.

What if you could outsource all that legwork to someone else? With a mortgage broker, you can.

What is a mortgage broker?

A mortgage broker is a licensed professional who connects borrowers with mortgage lenders. A mortgage broker can help you apply for a new mortgage or advise on a mortgage refinance.

What does a mortgage broker do?

A mortgage broker works to connect home buyers or homeowners with the best mortgage rates possible. When you hire a mortgage broker, they will gather and review your financial information and documentation. They'll look at the loan amount you're requesting, your down payment, your income, and your credit score. Then, they'll match you up with favorable borrowing options.

When you're applying for a mortgage without a broker, you're responsible for researching current mortgage rates. You need to understand mortgage terms (closing costs, fees, and other conditions), and sort through mountains of data to compare your choices.

Keep in mind that mortgage brokers are not bank or lender representatives. Instead, they independently research mortgage lenders and establish relationships with each lender.

Who pays a mortgage broker?

Mortgage brokers are paid either directly by the borrower or by the lender you eventually close a loan with. In some cases, mortgage broker fees are the borrower's responsibility. It's important to understand exactly who is responsible for paying your mortgage broker.

The good news is that mortgage brokers are required to disclose their fees up front; there can't be any surprises.

If the mortgage broker is paid by the lender, their fee is paid when customers sign a mortgager. The typical fee paid by a lender is 0.50% to 2.75% of your loan amount.

Pros and cons of a mortgage broker

There are several benefits to using a mortgage broker, including better rates and less impact to your credit score. On the other hand, you should be careful when working with a mortgage broker for one big reason: They only get paid when you sign a mortgage.

Better for your credit score

A broker can make it possible for you to apply for several mortgages within a short time frame -- a smart move from a credit-score standpoint.

Here's why: Each time a lender pulls your credit history to determine whether you're a viable loan candidate, that counts as a hard inquiry on your credit score, which can bring that number down a little. A single hard inquiry won't do much damage, but multiple hard inquiries could hurt your credit score a lot more. If you apply for multiple mortgages within a short period -- generally 30 to 45 days -- all of those hard inquiries count as a single inquiry, thereby preserving your credit score. Without the help of a broker, you might struggle to get all your applications in quickly enough to avoid the hit.

Lower mortgage rates

Another benefit of using a broker is that he or she may be able to snag you a better mortgage rate than what you'd get on your own. Brokers build relationships with lenders that translate into savings for you. Plus, mortgage brokers know how to negotiate. By hiring one, you can score a lower interest rate on your home loan. Your broker can often negotiate lower fees or closing costs. Furthermore, with a mortgage broker in your corner, you gain access to a wider network of lenders -- and that alone could pave the way to a really good deal.

Cautionary notes

There are some lenders that specifically do not work with mortgage brokers. As a result, using one could mean cutting off certain borrowing opportunities that would otherwise be a good fit.

Make sure the deal your broker is getting you is worth the fee you pay. If your broker is paid by the lender, you may be pushed to sign with the lender who pays the broker the biggest commission. Is it better if you pay the broker's fee? Sometimes: if you're paying, your broker may be less inclined to push one mortgage over another. Do some research and understand your broker's fees before signing anything.

Should I use a mortgage broker?

If you don't have time to sink into the mortgage application process, or if you're in a hurry to secure a home loan, hiring a broker is a wise choice. Just be aware of the potential drawbacks involved. Don't just pick a random broker. Ask for recommendations from friends, family members, colleagues, or neighbors.

Even with lots of endorsements, be sure to ask a lot of questions before agreeing to work with a mortgage broker. Find out how that broker gets paid and get a sense of his or her experience.

A favorable mortgage rate can save your bank account long-term. A mortgage broker could be your ticket to a lower interest rate -- so if you don't have the time or patience to apply for mortgages yourself, or want someone in your corner who knows how to negotiate rates, talk to a mortgage broker.

Still have questions?

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FAQs

  • Mortgage brokers have access to numerous lenders and loan products and aren't tied down to one company or its products. Loan officers -- also called mortgage bankers -- work directly for a lender, bank, or credit union. They're only allowed to offer products from their employer, and they can't help you shop with other lenders or compare your options.

  • With a mortgage broker, you're not limited to a single lending institution. A broker can get you several offers from a variety of lenders. Then, you can choose the mortgage that's most affordable for you. When you apply for a mortgage directly with a bank, you get just one offer to decide on.

  • Look for a mortgage broker who's open about fees and easy to communicate with. You should also aim for a broker who has experience and relationships with a range of lenders.

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