If you’re looking for the best deal on your mortgage, you may want to consider working with a mortgage broker. Many borrowers don’t know much about mortgage brokers’ services and the fees they charge for said services.
Here’s what you need to know about working with a mortgage broker to secure a loan:
What Is a Mortgage Broker and What Do They Do?
A mortgage broker is a financial professional that works with borrowers and mortgage lenders to secure mortgage loans. Mortgage brokers themselves are not lenders, but they can connect you with one that offers the right loan product for your financial needs. Mortgage brokers should spend time getting to know your financial situation to find the right product for you.
How Does a Mortgage Broker Differ From a Loan Officer?
Essentially, a mortgage broker acts as a middleman between the lender and the borrower and receives compensation for doing so. Brokers work with many different lenders that offer different loan products. They do all the work and negotiation for you to find the best possible home loan options.
Loan officers, on the other hand, work directly for a financial institution. As a result, they can only provide you with information regarding the loan products offered by that specific financial institution. While this is a more direct process, it may limit the different kinds of loans you can find.
Should You Use a Mortgage Broker? Pros and Cons
There are both pros and cons to using a mortgage broker that you should consider before moving forward:
- Mortgage brokers provide you access to different lenders, different mortgage loan types, and different interest rates to find you the best overall option.
- Mortgage brokers may be able to offer you loans and mortgage rates that traditional banks simply cannot.
- Mortgage brokers are experienced financial professionals that can help you determine how much house you can afford and your chances of being approved for a loan.
- Mortgage brokers help guide you through the entire home buying process — think of them as someone else to have on your team.
- Mortgage brokers can help you save time and money as a result of their services.
- Mortgage brokers may not be able to offer you a better deal than you would get by working directly with a lender on your own. This goes for origination fees and other origination charges, and purchase price.
- Not all lenders work with mortgage brokers.
- Mortgage brokers charge fees for their services that add to the overall cost of your mortgage loan; however, a good broker will more than make up for their fees by finding you a better rate.
Overall, keep in mind that mortgage brokers may not always be the best deal sourcing option for everyone. If you are a highly qualified borrower or have a good relationship with a bank, it doesn't hurt to shop around and see what terms you can negotiate with a lender directly.
How Much Does It Cost To Use a Mortgage Broker?
Mortgage brokers don’t offer their services for free. Instead, mortgage brokers charge fees that typically range from 1% to 2% of the loan amount. So if you use a mortgage broker for a $200,000 loan, you can expect to pay anywhere between $2,000 and $4,000 in fees.
While you should always check the fees associated with any potential broker before agreeing to work with them, federal law prohibits mortgage brokers from charging over 3% of the loan amount or fees directly tied to the loan’s interest rate. Federal law also prohibits brokers from charging hidden fees.
Who Pays Mortgage Broker Fees?
Now that you know that mortgage brokers charge between 1% and 2% of the loan value in fees, you’re probably wondering who has to pay those fees. There are two different payment options. The first option involves the borrower paying any broker fees in a lump sum at closing. The second option involves the lender paying any broker fees at the time of closing.
While the second option might seem better as it allows you to avoid paying these fees up-front, you will still end up paying them. When the lender pays your mortgage broker fees, they will simply add the sum of the fees to your total loan amount. As a result, you’ll also have to pay interest on this extra amount. So even though it may be tempting to choose this option, you’ll end up paying more at the end of the day.
Where to Find the Right Mortgage Broker
It’s easy to find a loan officer — all you have to do is walk into a bank or a credit union. But where do you find a mortgage broker? Here are some different places where you can look:
- Referrals: Perhaps the best way to find a mortgage broker is to get a referral from family or friends. Ask who they used to buy their home and if they would recommend them. You could also ask your real estate agent if they have any recommendations based on their experience in the real estate industry. The odds are that they know or at least know of some of the best players in the game.
- Online: Another way to find a mortgage broker is to look online. After all, we get everything else from the internet. Why not get a mortgage broker too? This is a great option if you’re looking for a local broker, as the internet search will automatically bring up brokers near your search location. From there, you can quickly check reviews and websites.
- Directories: If you don’t want to do all the research on your own, you could also use a mortgage broker directory to find a broker. There are many different directories to choose from; just make sure you’re searching with the right filters to find a broker that meets your needs. These mortgage broker directories are also online but allow you to search for mortgage brokers who are licensed and vetted.
What To Look for in a Mortgage Broker
Speaking of vetting, even if you receive a great referral for a mortgage broker or find one on a reputable online directory, you still need to do your due diligence before working with them.
Here are some of the different things you should ask when considering a mortgage broker:
Questions About Fees
- What fees do you charge? This gives you a good idea of what you can expect to pay by working with a specific broker. As you know, brokers’ fees typically range from 1% to 2%. While 1% may not seem like a big difference, when you’re dealing with a loan worth hundreds of thousands of dollars, it does end up making a big difference.
- What type of mortgage is the best option for me? Mortgage brokers should be interested in finding you the right type of mortgage based on your needs and goals. To do this, they need to understand your financial situation. So make sure that your broker is asking you just as many questions as you’re asking them.
- How much will my loan cost? Ask the broker for a loan estimate. This estimate provides you with a proposed amount for your monthly mortgage payment based on the initial loan amount, interest rate, closing costs, taxes, and insurance. Getting this estimate is the best way to anticipate your mortgage costs and ensure that you can afford them.
- Should I buy points or make a larger down payment to save money? While it may be tempting to buy points to lower your interest rate or put down more money to save on interest costs, these options aren’t always beneficial. For instance, if you’re planning on staying in the house for a few years before reselling, it doesn’t make sense for you to spend thousands of dollars to get a small interest rate decrease.
It also doesn’t make sense for you to drain your bank account to purchase a home. Instead, you need to keep some money to cover unexpected and emergency expenses.
- How do you communicate with your clients? Make sure that your mortgage broker is responsive and communicates clearly. After all, you depend on them to get you to the closing table in a competitive market — you can’t be left waiting around to get preapproval or close on your mortgage.
- Do you offer rate matches? Many brokers offer rate matches if another broker is offering lower fees. Ask your potential brokers ahead of time to make sure that they’re ready and willing to work with you.
You should shop around with a few different brokers to get the best rates. By doing your research and asking these questions, you can find the right fit for your needs.
Final Thoughts on Mortgage Brokers and Fees
If you’re looking for the right mortgage designed for you, then you need to connect with the mortgage specialists at Vaster. Our mortgage professionals offer tailored guidance with fast closings to help meet your mortgage needs. We offer loan services for different asset classes, including residential, commercial, and vacant land.
Reach out today to see how we can help you get the best deal on your loan.
Mortgage Broker Definition | Investopedia
Should I Work With a Mortgage Broker? | US News
Questions to Ask a Mortgage Broker Before You Work With Them | Business Insider