Readers: This is article 20 of 25 from my no-nonsense “Mortgage Basics” quick-reference series.
A mortgage broker is an independent middleman who finds potential customers for mortgage lenders. The mortgage broker’s job is to collect all of the loan documents from a prospective borrower; he then reviews and delivers the paperwork to the lender. Mortgage brokers usually charge a fee between 1% and 2% of the loan amount.
Consider these pros and cons to determine whether a mortgage broker is right for you:
Pros
They save time. For most borrowers, this is the biggest benefit of having a mortgage broker. The alternative is to do all of the tedious legwork required to find the best loan deals yourself.
They may save you money. In rare cases, mortgage brokers can influence lenders to waive certain closing fees greater than their commission.
Cons
They may have a conflict of interest. Because mortgage brokers often gets paid by lenders looking for business, they may steer you toward a mortgage that is more in tune with their best interests, rather than yours.
They dont have access to every lender. Some lenders refuse to use mortgage brokers. This means you could be missing out on a lender who is offering the best deal.
Their estimates aren’t usually guaranteed. The Good Faith Estimates provided by a broker can be changed by the mortgage lender, which often results in you paying more than you originally expected.
They may NOT save you money. Many lenders are more than willing to offer homebuyers the same interest rates they provide their brokers.
Photo Credit: GotCredit
Thanks for the quick run-down Len! I personally have no interest in shopping around for mortgage rates so I think a broker would be helpful for me. That said, you’re right to always be on the lookout for conflicts of interest.
Thanks, Jay.
That’s got to be a business with an expiration date. I just dont understand why we dont have a Kayak like site that compares all mortgage rates around the country
There are sites like Lending Tree that do that, MM.
This was helpful. So, what are your recommendations for using a mortgage broker–when one wants to save time and is OK with paying the fee and thinks he/she would get a good deal? I am thinking about buying my first house, but I am really am clueless to it all. Your blog is definitely one I’ll be looking at more often in the future. One last question: if I do not have enough for 20% down or whatever the customary downpayment, is it true (and wise, even) that one can get that as part of the mortgage or as an additional loan? Thanks!
Matt: I’ve used a mortgage broker on several occasions — in fact, he is a golfing buddy and childhood friend of mine. Like any profession, there are goods ones and bad ones — you also need to shop around. In theory, they should be able to find you the best deals. My recommendation is to see what kind of deals you can find online and then ask a broker to beat the best deal you found. That’s what I do.
In today’s low interest rate environment, I would strive to put down the minimum down payment and get the longest loan terms you can — but that’s just me. I would rather pay my loan off slowly with dollars that are becoming less and less valuable over time. Again, that’s just me.