What Is a Mortgage Broker?
By: Samir Doshi
Unless you live under a rock (like I do), you’ve probably heard the term “mortgage broker” get thrown around. You may have heard good things, and you may have heard bad things.
A mortgage broker is essentially a middleman between the borrower/homeowner and the bank. They work directly with both the consumer and the bank to help borrowers qualify for a mortgage, whether it be a purchase mortgage or a refinance.
As you can see in the diagram above, the mortgage broker acts as a liaison between two important entities. The borrower/homeowner end is the retail side, while the bank/lender end is the wholesale side.
So how does this whole mortgage broker thing work?
Well, once a borrower makes contact with a mortgage broker and agrees to work with him or her, the broker will gather important information. Income, asset, and employment documentation, along with a credit report, are necessary to assess the borrower’s ability to obtain financing. A retail bank would collect the same documentation, sometimes the bank requires more documentation then a broker.
Once the mortgage broker has all the important details, they can determine what will work best for the borrower. This may include setting an appropriate loan amount, loan-to-value, and determining which loan type would be ideal for the borrower.
When all the details are ironed out, the broker will submit the loan to a lender they work with to gain approval. During the loan process, the broker will communicate with both the bank and the borrower to ensure everything runs smoothly.
If you use a broker, you won’t actually work directly with the bank. All correspondence will funnel through the broker and their staff.
Mortgage Brokers Can Shop Your Rate for You
After all the paperwork is taken care of, the mortgage broker will work on behalf of the borrower to find the best (lowest) mortgage rates available. This is the key advantage of a mortgage broker. They have the ability to shop with numerous banks and lenders simultaneously to find the lowest rate and/or the best loan program.
Mortgage Brokers Are Your Loan Guide
Mortgage brokers work with borrowers throughout the entire loan process until the deal is closed. Overall, they’re probably a lot more available than loan officers at retail banks, since they work with fewer borrowers on a more personal level.
This is another big advantage over a retail bank. If you go with one of the big banks, you may spend most of your time on hold waiting to get in touch with a representative. Additionally, if your loan is declined, that’s the end of the line. With a mortgage broker, they’d simply apply at another bank. They are skilled at navigating the loan world in order to find the best path towards home ownership or refinancing to your goals.
Mortgage Broker FAQ
Do mortgage brokers cost more?
No, as mentioned mortgage brokers can offer competitive rates that meet or beat those of retail banks, so they should be considered alongside banks when searching for financing. They have the ability to shop numerous lenders at once so they can find the best pricing based on your needs.
Do mortgage brokers need to be licensed?
While licensing requirements do vary by states, mortgage brokers must be licensed and complete a criminal background check including fingerprinting. Credit checks and minimum experience are also often required. Additionally, brokers must usually complete pre-license education and some must take out a bond or meet certain net worth requirements. They must pass a National Licensing exam in order to originate loans in most states.
Are mortgage brokers regulated?
Yes, mortgage brokers are regulated on both the federal and state level, and must comply with a large number of rules to conduct business.
Are mortgage brokers going out of business?
While mortgage brokers account for a much smaller share of total loan volume these days, they still hold a fairly substantial slice of the pie.
And despite the ups and downs that come with real estate, they will most likely continue to play an active role in the mortgage market because they provide a unique service that large banks and credit unions can’t imitate.