What is a mortgage broker? Who They Are and When to Hire One

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One of the biggest steps in the home-buying process is securing a mortgage. Lenders require deep dives into your financial assets and debts in order to determine appropriate mortgage rates. Some mortgage lenders might offer outrageous interest rates that drive up your monthly payments, while others offer loans that simply aren’t a good fit for your needs. 

There is one person who might be able to streamline this process for you: the mortgage broker. There’s a significant difference between a mortgage broker and a mortgage lender. Learn more about this real estate professional and how they can help you secure a loan. 

What is a mortgage broker?

The first step is to look at the mortgage broker definition to understand who this person is. A broker works as a go-between for a buyer and a loan officer. The broker doesn’t supply the loan (they don’t put up any of their money to finance your house) and instead they reach out to different lenders until they find a favorable partner to work with. Think of your broker as a middleman between you and the actual bank or credit union that issues your loan. 

The terms “loan officer” and “mortgage broker” cannot be used interchangeably. A loan officer drafts, issues, and manages your loan. The mortgage broker finds the best officer to work with. 

Why would a buyer want to work with a broker instead of directly meeting with a lender? What do mortgage brokers do that makes their services valuable to all parties involved? Keep reading to learn more.

Understanding the Workflow of Mortgage Brokers

The best way to understand what is a mortgage broker is to look at the various tasks they complete to help you secure a loan. Here is what the process looks like. 

• You (the buyer) meet with a mortgage broker to talk about your loan goals. During this meeting, you will review your finances, down payment, credit score, and other key information related to the loan. 
• The broker evaluates your financial information and passes it on to lenders. The broker might have several lenders in mind to work with. 
• The broker and loan officer will discuss your loan options and reach an agreement on the best option. Your broker might compare offers before presenting on to you. 
• If you agree to the best loan offer from a bank or credit union, the mortgage officer will move forward with the application. You will go through the mortgage loan process just like any other application. 
• Your broker is paid at the closing appointment, which is when the mortgage paperwork is signed and you take official ownership of your house. 

The main benefit of working with a broker is that you save time. Buyers often seek pre-qualification and loan estimates from multiple lenders before moving forward with one. Instead of spending several hours speaking to different companies, the broker takes down your information once and does the research for you. As a buyer, you get a competitive loan without the hard work. 

How do mortgage brokers get paid? 

Mortgage brokers don’t help homebuyers out of the goodness of their hearts. They do this as a career and expect to be paid for their work. There are two ways for a mortgage broker to get paid:

• The lender pays the mortgage broker at the closing appointment. 
• The borrower pays the mortgage broker at the closing appointment. 

In the first situation, working with a mortgage broker is essentially free for the buyer. The lender is willing to work with the broker because it means they issue more loans and turn a higher profit. The lender agrees to pay the fees associated with the broker when they issue your mortgage loan. 

In the second situation, you are expected to pay the broker. Make sure you are clear about who pays the broker fee before you agree to work with someone, otherwise your closing costs could be much higher in order to compensate them.

>> AGENT ANSWERS: How long does mortgage pre-approval last?

Origination fees typically fall between one and two percent of the loan amount. Federal law caps broker fees at three percent of the loan amount. If you require a $300,000 loan, either you or your loan officer will need to pay between $3,000 to $9,000 to the broker.

Pros of Working With a Mortgage Broker

Mortgage brokers work to make the buying process easier for buyers. They allow you to spend less time worrying about mortgage loan comparisons and more time planning for the big move. There are several advantages of working with these professionals:

• You know that you are working with trusted lenders that the broker has worked with before. 
• The broker might be able to get favorable rates because they work with certain banks frequently. 
• A broker can offer advice on different loan options, empowering you to make the best loan options for your personal needs. 
• A broker can help in difficult situations where getting a loan might be hard. They can talk to lenders who otherwise wouldn’t consider your loan application. 

With the opportunity to save time and money, working with a broker is often a good idea for buyers. This is particularly true for first-time homebuyers who might not have large down payments or knowledge of the home loan process.

Cons of Working With a Mortgage Broker 

In all things real estate, there are benefits and drawbacks to every certain decision. Hiring a mortgage broker isn’t right for everyone. Here are a few reasons you might not want to hire this professional. 

• You might not have access to as many loan officers as you think. Some banks and credit unions refuse to work with brokers. 
• You have to trust that the broker will present your information accurately to loan officers. Any errors could delay the buying process and frustrate the home seller you want to buy from. 
• The more loans a broker closes, the more money they make. You might feel pressured to make decisions or agree to loan terms that you aren’t sure about. 
• The broker might be eager to work with some banks over others, either because of their commission rates or the speed with which the loan is issued. This means your loan suggestions might be biased. 
• Unless you are clear about the fee structure beforehand, you might have to pay the broker yourself. 

Working with a broker might not be the best idea if you want to work with a specific bank or want to take a hands-on role during the application process. You need to trust that these people are working in your best interest.

7 Questions to Ask a Mortgage Broker Before Hiring Them

Just like hiring a Realtor, you need to carefully vet your mortgage broker before you agree to work with them. If you don’t feel like one broker is honest with you (or even a good personality fit) you can interview another or represent yourself to banks. Here are a few questions to ask when you meet with a broker.

1. How do you get paid? 

This should be the first question you ask. Know up front whether you will be expected to pay for their services and what the rates will be. Ask about any additional fees or expenses and when you will be expected to pay them.

2. What loan officers do you work with? 

Your broker doesn’t want to give away all of their professional secrets, so they might not list a dozen banks they work with. However, they should be able to answer questions related to the number of lenders, the types (banks, credit unions, etc.), the size of the lenders, and the types of loans they can broker. 

Now is also an opportunity to ask about specific mortgages you might qualify for. Has your broker worked to procure VA loans, FHA loans, USDA loans, and other niche mortgages?

3. Where are your licensed to work?  

Never work with a broker who isn’t transparent about their licensing. They should be clear about their license number (some have it on their websites and in their email signatures) and which states they are able to work in. You can also check the license yourself to make sure it is active and valid.

4. Tell me about your experience and background.

This is an open-ended question to get to know your broker better. They should be able to tell you how long they have been doing this, how they got into mortgage brokering, and whether this is full-time work for them. Feel free to ask follow-up questions on anything your broker says.

5. Do you see any red flags in my finances?  

A quality mortgage broker will be honest about your financial situation. They will highlight certain factors that might affect your loan, like your down payment or credit score. They might also offer advice on how to improve these elements. 

Be wary of a mortgage broker who immediately raves about your financial state. They might be trying too hard to earn your business and might not get you the rates you want. 

6. What mortgage loan should I apply for?

This is partly a trick question and partly an opportunity for you to learn. Avoid mortgage brokers who immediately recommend specific loans and try to push you to accept them. These brokers might have ulterior motives (like higher commission rates) tied to the loans. A quality broker will review your options and listen to your concerns. They understand that it’s up to you to choose the loan type. 

Asking this question of different brokers can help you understand the pros and cons of different loan options – empowering you to make strategic decisions once you are ready to move forward.

7. How do you work with my real estate agent and loan officer?

Ask your mortgage broker to go into detail about the relationship between the broker, mortgage lender, buyer, and Realtor. This will help you understand how much work you have to take on as the buyer. If the broker isn’t willing to help you with the loan process, you are really just paying them to recommend lenders to you. 

This is why Realtor recommendations are so important. It helps to choose a broker who your agent already has a good relationship with.

How to Choose a Mortgage Broker

The interview is only the first step in hiring a mortgage broker. Do not let a broker force you into working with them during your first call or meeting. Ask for references and opportunities to read reviews from past clients. A quality broker doesn’t need to pressure buyers into becoming clients. Here are a few steps to follow.

1. Research brokers in your state and ask your Realtor for broker recommendations.
2. Interview at least three mortgage brokers. Use the questions above as jumping-off points to learn more about them. 
3. Request references and reviews from the brokers. You don’t have to call every reference, but you should call at least one reference per broker. You can also do your own research on the brokers. 
4. Choose the best broker for the job. You can also narrow down your brokers to the top two if you have follow-up questions you would like them to answer. 

Let your desired mortgage broker know you plan to work with them and reach out to the other brokers who you did not select. It’s polite to let these brokers know they were not picked and to thank them for their time. Plus, letting them know you chose someone else means they won’t keep following up with you to earn your business.   

>> AGENT ANSWERS: How do i get preapproved for a mortgage?

Ask Your Realtor for a Recommended Broker

If you still aren’t sure whether hiring a mortgage broker is right for you, talk to your Realtor about working with one of these professionals. They might have their own opinions about hiring brokers and can recommend quality peers who they have positive experiences with. 

If you are just starting the homebuying process, use our service at FastExpert to find an agent. We have a large database of top real estate agents who have a proven track record of client success. We can recommend a few top Realtors in your area based on your desired zip code. These are pre-vetted Realtors so you don’t have to go through the sorting process. 

Try out FastExpert today and see how we can help you.

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