What is a Mortgage Broker
A mortgage broker is an intermediary who brings mortgage borrowers and mortgage lenders together, but does not use its own funds to originate mortgages. A mortgage broker gathers paperwork from a borrower and passes that paperwork along to a mortgage lender for underwriting and approval. The mortgage funds are lent in the name of the mortgage lender, and the mortgage broker collects an origination fee from the lender as compensation for services. A mortgage broker is not to be confused with a mortgage banker, which closes and funds a mortgage with its own funds.
BREAKING DOWN Mortgage Broker
A mortgage broker is an intermediary working with a borrower and a lender while qualifying the borrower for a mortgage. The broker gathers income, asset and employment documentation, a credit report and other information for assessing the borrower’s ability to secure financing. The broker determines an appropriate loan amount, loan-to-value ratio and the borrower’s ideal loan type, and then submits the loan to a lender for approval. The broker communicates with the borrower and the lender during the entire transaction.
Pros and Cons of Utilizing a Mortgage Broker
The mortgage broker works on a borrower’s behalf to find the lowest available mortgage rates and/or the best loan programs through numerous lenders. The broker saves the borrower much time during the application process and a potentially large amount of money over the life of the loan. However, the number of lenders a broker accesses varies by his approval to work with each lender; therefore, a borrower has access to lenders the broker does not. In contrast, a bank’s loan officer offers programs and mortgage rates from a single bank, lessening the borrower’s ability to compare loans and rates when compared with a mortgage broker.
A broker works with a few borrowers at one time until the loan transaction is finished. The broker does not get paid unless a loan closes, encouraging him to work with each borrower on a more personal level. A loan officer from a big bank may keep a borrower on hold for an extended period of time due to the officer’s working with many borrowers at once. If a loan originated through a broker is declined, the broker applies with another lender. If a loan originating through a loan officer is declined, no further action is taken with the bank.
Some lenders work exclusively with mortgage brokers, providing borrowers access to loans to which they otherwise would not have access. In addition, brokers get lenders to waive application, appraisal, origination and other fees. Big banks work exclusively with loan officers and do not waive fees.