Lending help
Hiring a mortgage broker can help relieve some of the stress and answer loan-related questions when you’re buying a house, especially if you’re a first-time homebuyer.
In their role as the middleman between borrowers and lenders, a mortgage broker can help you find a lender that meets your needs and financial requirements, such as a preference for a lower down payment or the best interest rate possible. If you’re seeking a Federal Housing Administration or Veterans Affairs loan, for example, a broker with experience in working with veterans, or who understands the requirements for FHA loans, can simplify the process.
“Some (lenders) may specialize in particular property types that others avoid. Some may have more flexibility with credit scores or down payment amounts than others,” says David Reiss, a law professor who specializes in real estate and consumer financial services at Brooklyn Law School in New York and the editor of REFinBlog.com.
Working with a mortgage broker has advantages over going directly to a lender to obtain a mortgage. Consumers can save money during the process, obtain more loan options and have someone explain the fine print to them, which can save time.
The mortgage industry is changing constantly, and a good mortgage broker can help a homeowner understand the lengthy process — from getting a good interest rate to paying lower fees to closing the loan on time.
A mortgage broker’s role
A mortgage broker works for a lender known as a non-depository institution, says Rick Masnyk, a branch manager at Network Funding in North Smithfield, Rhode Island.
“They provide home financing without having access to the other products that a depository institution or a bank provides,” Masnyk says.
Unlike a bank loan officer who can only offer mortgage products available at his own bank, mortgage brokers have an advantage because they have access to sources of financing from multiple financial institutions, such as JPMorgan Chase and Wells Fargo, as well as other ones that a consumer may not have heard of because they don’t have bricks-andmortar locations within that consumer’s geographic area, Masnyk says.
Federal laws require that mortgage brokers are licensed and cannot have their salary linked to the interest rate you receive from a potential lender. Working with a broker should not affect how much your loan will be.
A broker can save the consumer time and effort in “locating the best possible loan,” says Jackie Boies, a senior director of housing and bankruptcy services for Money Management International, a Sugar Land, Texas-based nonprofit debt counseling organization.
Part of a mortgage broker’s job is to “do the math” and let a borrower know the loan amount they qualify for to be approved for in a mortgage, Masnyk says.
“They would be responsible for originating the loan and placing the loan with the investor who would fund the transaction at the closing table,” says LeeAnn Casanova, U.S. sales director of wholesale mortgage products for Quontic. “It is about finding the right mortgage for each unique buyer.”
How does a mortgage broker get paid?
A mortgage broker’s fees are more transparent in the aftermath of the Great Recession in 2008.
The cost of the loan is charged to the borrower and the lender purchasing the loan provides a credit equal to that cost, resulting in no cost to the borrower, Masnyk says.
Mortgage brokers get paid in either one of two main ways: upfront at closing by the borrower, or after the transaction closes by the lender. The broker’s fee is a small percentage of the loan amount, usually between 1% and 2%.
Working with a broker
Homeowners who choose to work with a mortgage broker can receive more in-person interaction and let a licensed professional do the legwork for them, Masnyk says.
“Working with someone you can see face to face and/or someone your Realtor
has used in the past and trusts is always a great source,” he says. “There’s no reason not to.”
In addition to consulting a mortgage broker, shop around at several mortgage lenders to obtain the best interest rate and term of loan that fits their situation. Whether the consumer chooses to use a mortgage broker or banker is a personal choice.
“It’s just as important to shop for the lowest possible closing costs in conjunction with that rate,” Masnyk says. “A mortgage provider may appear to have a great rate, but if their closing fees are excessive, you may not be getting the deal you think you are. What you pay overall in monthly payments and closing fees determines the best possible mortgage program.”
Many brokers have access to a powerful loan pricing system that helps price your loan across many lenders at one time.
“They can quickly focus in on the best lenders for your scenario,” Andrew Weinberg, a principal at Silver Fin Capital Group, a Great Neck, New York, mortgage company, says. “In most cases, they do not charge the client a penny for their services. Their compensation comes solely from the wholesale lender, and only in the event the loan closes.”
Brokers maintain a large network of wholesale lenders and can provide consumers multiple offers, rather than being limited to the offerings of just one lender.
Choosing one
Finding a mortgage broker requires a bit of homework: ask for referrals from your Realtor, friends and family.
Check their licensing with your state professional licensing authority, read online reviews and check them out with the Better Business Bureau, Boies says.