Mortgage brokers don't work for free, and if you use one, that increases the cost of your home loan.
Mortgage brokersgenerally earn a fixed fee equivalent to 1% to 2% of the total cost of the loan. If you pay this as a borrower, it can be part of your closing costs or be included in the loan amount. Sometimes, the lender pays the mortgage broker (since, after all, the broker keeps the lender's business).
While that may seem less expensive on paper, your lender could include broker fees in the cost of your loan. Mortgage brokers must disclose their fees upfront, so it's something you can ask when looking for a broker. If you pay the mortgage broker, they cannot receive additional compensation from the lender, neither do you pay nor does the lender receive it. However, a mortgage broker is not a mortgage fund lender.
Brokers originate mortgage loans and place them in the hands of lenders, who then disburse the funds at closing. You may get a better rate and lower closing costs. Mortgage brokers don't anticipate loans, but instead offer a one-stop shop with access to several lenders, while a direct lender is a single entity that eliminates the middleman. In that case, a mortgage broker can help you find lenders that fit your situation.
A mortgage broker works with everyone involved in the loan process, from the real estate agent to the insurer and the closing agent, to ensure that the borrower gets the best loan and that the loan is closed on time. If your mortgage application involves challenges, an agent who knows which lenders are most flexible can help you. Specialty lenders that only provide home loans, such as Rocket Mortgage or Better Mortgage, are generally included in the category of banks. Part of a mortgage broker's job is to “do the math and tell the borrower the size of the mortgage they might qualify for,” says Rick Masnyk, branch manager for Network Funding in North Smithfield, Rhode Island.
If you prefer not to receive dozens of calls from mortgage brokers, you can search for them directly through sites that bring together local and independent mortgage brokers from all over the country. For people who don't want the hassle of contacting different banks, mortgage brokers are a better option. Mortgage brokers tend to be more localized, so the best place to start your search is to ask friends, family, and your real estate agent for recommendations. A mortgage broker helps all types of borrowers get the best deal, and this commitment can be especially useful for borrowers with unique circumstances, such as poor credit or a desire to buy a certain type of property.
Because mortgage brokers work with many lenders, including major banks, small lenders, insurance and trust companies, and private funds, they often have access to a better rate. To get the best of both worlds, get loan quotes from at least one broker and bank when looking for a mortgage to see which one can offer you the best deal. To do this, a mortgage broker sits down with his clients to assess their needs and their financial situation. On the one hand, mortgage brokers often work with several lenders and can look for the best option.
While the broker works with several lenders, keep in mind that some lenders don't work with brokers. Some brokers charge the borrower directly, rather than the lender; in these cases, this is usually a fixed fee that can be financed with the mortgage or paid at closing. .