Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.
Shopping for a mortgagecan be one of the more arduous steps in buying a home. A mortgage broker can simplify this process by connecting homebuyers with appropriate loans, preparing application materials and guiding the borrower through underwriting and closing. Plus, unlike loan officerswho work for specific banks, mortgage brokers have access to a wider range of mortgage products—which means borrowers may be able to get more favorable interest rates.
Working with a mortgage broker is a great option for anyone who wants to remove some of the legwork and headaches from the mortgage process. But brokers can be especially helpful for first-time homebuyerswho need extra support.
Keep in mind, though, that mortgage brokers work on commission and may have preferred lenders that don’t always offer the best interest rates. Therefore, if you have experience buying and financing real estate and feel comfortable shopping for a mortgage yourself, you may save money by working without a broker.
What Is a Mortgage Broker?
A mortgage broker is a licensed and regulated financial professional who acts as an intermediary between borrowers and lenders. Brokers identify loans that meet borrower needs and then compare rates and terms so the homebuyer doesn’t have to. Mortgage brokers have the ability to offer mortgage products from a network of lenders and provide access to a greater range of products than loan officers, who are limited to their own bank’s offerings.
Mortgage brokers then guide clients through the application and underwriting processes, often by compiling application materials, pulling the borrower’s credit history and verifying income and employment information. Finally, mortgage brokers work with everyone involved in the transaction, including the real estate agent, underwriter and closing agent, to ensure the loan closes on time.
Mortgage Broker Vs. Loan Officer
Mortgage brokers are financial professionals who work with a number of lenders to offer a wide range of loan programs to consumers. These brokers match borrowers with specific lenders and loan programs that best meet their needs for a fee or commission.
A loan officer, on the other hand, works for an individual bank or other direct lender and can only sell mortgage products offered through that institution. For this reason, mortgage brokers give clients access to a much broader array of lenders—including lesser-known institutions that may offer more favorable terms than well-known, brick-and-mortar banks.
How a Mortgage Broker Works
Perhaps you want to buy a house and you don’t have an existing banking relationship or aren’t satisfied with the rate offered by your current mortgage lender. You can call a mortgage broker who works with multiple lenders to help borrowers identify the best loans and rates from a broad range of loan programs.
Using a mortgage brokercan also save you a tremendous amount of time. Rather than contacting several lenders individually and poring over complicated loan offers, you simply work with a broker who determines how much loan you’re likely to qualify for and handles all of the legworkfor you.
Brokers then help the homebuyer compile the necessary documentation and shepherd them through the application and underwriting process. Upon closing, the mortgage broker earns a borrower fee or lender commission of between0.50% and 2.75%of the total loan amount—depending on the broker’s fee structure and whether they’re being paid by the mortgage lender or borrower.
How to Choose a Mortgage Broker
Applying for a mortgage can feel like an extremely personal and invasive process, so it’s important to find an experienced broker who makes you feel at ease and who has your best interests at heart. Start the search for a broker early in the home-buying process so you have time to find a broker who can identify the best loan for you and help you through application, underwriting and closing.
1. Ask for Referrals
Start your search for a mortgage broker by contacting your current bank or lending institution. If you don’t already have a banking relationship—or aren’t happy with the terms your existing mortgage lender offered—ask friends and family for referrals. Your real estate agent should also be able to recommend one or two strong candidates with experience in your area.
2. Vet Your Options
Once you compile a list of potential brokers, visit the Nationwide Multistate Licensing System & Registry(NMLS) consumer access website to confirm each broker is fully licensed. Next, use the NMLS portal to determine whether any of the brokers have self-reported disciplinary actions; you also can contact your state’s relevant regulatory office to confirm this information. Finally, check platforms like the Better Business Bureau, Yelp and Google to see what past clients have to say about each broker.
3. Interview Brokers
The path from mortgage loan application to underwriting and closing can be a long one. It’s important to find a licensed broker who is experienced and who will be easy to communicate with. For that reason, you should interview at least three brokers before making a decision. Start with these questions when interviewing prospective mortgage brokers:
- How much experience do you have in the mortgage lending industry?
- What does your application process look like?
- Which lenders do you work with?
- What do you charge and are fees paid by the borrower or lender?
- What are my chances of getting a mortgage?
- Can you provide any references?
Finally, mortgage brokers work on a commission and may prioritize selling mortgages from lenders that don’t offer the most competitive mortgages. It’s important to fully vet both your broker and the loan options they have access to.
Mortgage Broker Costs
There are two basic ways mortgage brokers may be compensated: through fees paid by borrowers or commissions paid by lenders. The exact amounts of these fees and commissions vary, but generally, brokers can earn up to 2.75%of the total loan amount, depending on who’s paying.
- Borrower fees.These fees are paid by the borrower and typically range from 1% to 2% of the total loan amount. They can be paid as a lump sum at closing but are sometimes rolled into the total loan amount or otherwise incorporated into loan fees.
- Lender commissions.Lender commissions may range from 0.50% to 2.75%of the total loan amount and are paid by the lender after closing. However, when lenders are paying commissions to brokers, they typically pass these costs on to borrowers by building them into the cost of the loan. This is why it’s important to discuss fee structure with a potential broker before applying for a loan.
Consider someone who is buying a $500,000 home and wants to get a mortgage for $400,000. They might find a broker who agrees to find a loan for a 1% borrower fee. The mortgage broker matches the borrower with a lender and the lender approves the loan. When the loan closes, the mortgage broker earns a 1%—or $4,000—fee from the borrower.
Alternatively, the borrower may choose a loan structure that pays a 2% lender commission to the broker instead of a borrower fee. In this event, the broker would earn $8,000 from the lender after closing. However, the lender will likely recoup that cost from the borrower—typically in the form of a slightly higher mortgage rate, origination fee or other loan costs.
Prior to 2010, mortgage brokers had the ability to charge borrowers substantially more than the current standard commission. However, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010in the wake of the 2008 financial crisis to stem those abuses. As a result, mortgage brokers can no longer charge hidden fees, fees that are explicitly yrelated to the loan’s interest rateor fees and points in excess of 3% of the loan amount—among other restrictions.
Mortgage Broker Advantages
- Provide access to more mortgage products than a mortgage banker
- Help reduce or otherwise manage mortgage-related fees
- Simplify the process of finding and vetting loans
- Reduce some of the stress and legwork around shopping for mortgage rates
- Offer insight into how much mortgage a borrower can affordand the likelihood of approval
Mortgage Broker Disadvantages
- May charge a borrower fee of 1% to 2% of the total loan amount
- Can be biased based on existing relationships with lenders
- Depending on the borrower’s location, it may be difficult to find a reputable local broker
- May not be aligned with your best interests and don’t guarantee borrowers the most advantageous deal
