When you're buying or refinancing a home and need to get a mortgage, you have a number of options. You can shop around and apply directly to the lender of your choice. Or, you can go to a mortgage broker, who will work with you to find a lender and assist in the application process. If doing it that way appeals to you, here is how to find a mortgage broker.
- Mortgage brokers are licensed professionals who work with a variety of lenders to find a mortgage for their clients.
- Mortgage brokers are paid by either the lender or the borrower and commonly charge about 1% to 2% of the mortgage amount.
- To find a mortgage broker, your best bet is to ask your real estate agent, neighbors, or others in the area for recommendations. You can also search for a mortgage broker online.
What Is a Mortgage Broker?
A mortgage broker is a licensed professional who can work with multiple lenders to find, at least in theory, the best possible mortgage for their client. By contrast, a mortgage loan officer works for a particular lender, such as a bank, and can only recommend that lender's mortgage products. A mortgage broker should not be confused with a mortgage banker, which closes and funds a mortgage with its own funds.
Why Use a Mortgage Broker?
The advantage of using a mortgage broker is that they have relationships with multiple lenders and should be able to match you with the best and/or least expensive lender for your needs. A broker may be particularly helpful if, for example, you've had credit difficulties in the past and need a lender that is amenable to working with borrowers in your situation. Mortgage brokers can also help you in collecting the documentation you need and filling out your mortgage application, which is often a headache, especially for first-time borrowers.
How to Find a Good Mortgage Broker
Depending on where you live, you are likely to have at least several, and perhaps many, mortgage brokers to choose from. Here is how to narrow the field.
Your real estate agent, if you're using one, should be able to recommend one or more mortgage brokers in your area. Friends and neighbors who have recently used a broker can also be good sources of referrals.
If you're new to the area and don't have any local contacts, you can look for a mortgage broker online. There are any number of websites offering lists of the "best" local brokers, although their criteria for selecting them aren't always clear. One well-known site is FindAMortgageBroker.com, which cautions, "The listing of a mortgage broker on this site does not constitute an endorsement or recommendation."
Online review sites like Yelp also list local mortgage brokers, often accompanied by useful comments from past customers.
Average size of a mortgage in 2020, according to the Federal Housing Finance Agency
Check Them Out
While shady or incompetent mortgage brokers no doubt exist, state and federal law does provide some protection. Mortgage brokers are regulated under the SAFE Mortgage Licensing Act of 2008, which sets standards for the licensing and registration of state-licensed mortgage loan originators. Among other requirements, mortgage brokers must complete certain courses, pass a written test, and submit to an FBI background check. The states can also impose stricter requirements than the federal law provides for.
To find out whether a mortgage broker is authorized to conduct business in your state, you can plug their name into the Nationwide Multistate Licensing System's free online tool, Consumer Access. It will also tell you whether there have been any disciplinary actions against that broker.
The Better Business Bureau also has a large listing of mortgage brokers that you can search by location, including their BBB letter-grade ratings where applicable.
Bear in mind that you can shop for a mortgage broker, just as you would for a mortgage. If you aren't comfortable with the first one you interview, try another.
Questions you might want to ask include:
- How many lenders do you work with?
- Have you had clients with similar mortgage needs to mine?
- How much do you believe you might be able to save me?
- What do you charge, and who pays?
- What is your usual process and how long does it typically take?
Even if you've decided to go with a certain mortgage broker, it's to your advantage to visit a few mortgage websites to make certain that whatever interest rate your broker comes up with is competitive in the current market.
What Do Mortgage Brokers Charge?
Mortgage brokers are paid by either the borrower or the lender. By law, they can't be paid by both. They are also required to disclose their fees upfront.
Typically, the broker will receive about 1% to 2% of the amount of the loan. So on a $300,000 mortgage, for example, they might make $3,000 to $6,000. If you're the one footing the bill, the fee will usually be due at closing or it may be rolled into your loan.
The federal Dodd-Frank Act in 2010 imposed a number of new rules on mortgage brokers in an attempt to protect consumers from predatory practices. One of them is that lenders can't tie a broker's compensation to the interest rate on the loan. That rule was intended to keep mortgage brokers from steering clients into high-interest loans, as sometimes happened in the past.
Do I Need a Mortgage Broker?
Whether having a mortgage broker will be helpful depends mostly on you. If you're familiar with the different types of mortgages, are comfortable shopping for a lender, and have the time to put in to the process, hiring a mortgage broker may be of little value to you.
Are Mortgage Brokers Worth It?
Mortgage brokers typically charge 1% to 2% of your mortgage amount. If they do their job well, they can often save you enough money and time to more than pay for their services.
Where Do I File a Complaint About a Mortgage Broker?
Mortgage brokers are licensed by the states, so if you've had a problem with one and wish to make a complaint, that would be a good place to start. The American Association of Residential Mortgage Regulators has a list of member agencies and links to their home pages on its website.
The Bottom Line
If you’re shopping for a new mortgage, a mortgage broker may be able to save you some time and money. The best way to find one is to ask locally for recommendations. You can also look for a broker online as well as check whether there have been any disciplinary actions against them.