Mortgage brokers can save you time and fees, but they may not always consider your interests or may not be able to offer you the best deal. Mortgage brokers are paid with borrower fees or with fees from a lender. However, if a broker is paid a commission, the lender you can charge the borrower fees or higher interest rates to recover the broker's commission. Lenders are known for charging a long list of fees when applying for a mortgage.
These fees are one way lenders can contribute to your bottom line. These can include application fees, subscription fees, origination fees, appraisal fees, credit check fees, and more. Start your search for a broker early in the homebuying process so you have time to find a broker who can identify the best loan for you and help you with the application, underwriting and closing. Because lenders who work with brokers tend to experience a smoother process, you may get a discount on your loan if you do so through a broker.
Mortgage brokers want to present their best option to increase their chances of winning the lending business. A mortgage broker can also collect the financial documents you'll need to apply for a loan and submit a pre-approval request on your behalf, in addition to providing information about the local market. In addition, each mortgage broker must have the approval of a wholesale lender in order to offer their products and terms. A mortgage broker who pays a substantial monthly “marketing expense” to a real estate office can also be a contributing factor.
Because mortgage brokers cannot represent all wholesale options and inevitably have a different retail margin, they can only partially act for the customer's benefit. The total amount paid by the borrower will vary depending on the type of loan, the broker used, and the amount the broker earns in fees from the lending institution. Still, another mortgage broker may have access to a lower wholesale price because of their relationships with lenders. Because the mortgage broker does some of the work for the lender, the lender may be willing to exempt you from a fee that may not be relieved on your own.
Mortgage brokers then guide customers through the application and underwriting processes, often collecting application materials, analyzing the borrower's credit history, and verifying income and employment information. When a broker compares several wholesale lenders to best fit your loan, one will offer you the lowest wholesale rate based on the mortgage customer's credit, income, and other criteria. In other words, a mortgage broker may have presented the lowest wholesale price of their set of options. Some wholesale lenders impose minimum production requirements for mortgage brokers to remain “active” with them.
For this reason, it may still make sense to make some rate purchases on your own, in addition to the offers sent to you by the mortgage broker. Mortgage brokers help prospective borrowers find a lender with the best terms and rates to meet their financial needs.