What is a Mortgage Broker?
A “mortgage broker” is essentially a middleman between the borrower/homeowner and the bank or mortgage lender. They work directly with both the consumer and the bank to help borrowers get approved for a mortgage, whether it be a purchase or a refinance.
Borrower/Homeowner <—- Mortgage Broker —–> Bank/Mortgage Lender
As you can see from my rather rudimentary 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 it all 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. Things like income, asset, and employment information are necessary to assess the borrower’s ability to obtain financing. A retail bank would collect the same documentation.
Once the mortgage broker has all the important details, they can assess what would 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. Of course, the borrower can decide on all these things themselves if they so choose. The broker is just there to help.
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Mortgage Rate Shopping
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 to find the lowest rate or the best loan program.
If you use a traditional retail bank, the loan officer can only offer loan programs and corresponding rates from a single bank. Clearly this would lessen your chances of seeing all that’s out there. And who wants to apply more than once for a mortgage?
Keep in mind that the number of banks/lenders a mortgage broker has access to will vary, as brokers must be approved to work with each individually. In other words, one mortgage broker may have access to Wells Fargo’s wholesale mortgage rates, while another may not. The more options the better. So ask the broker for multiple quotes from as many lenders as possible.
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.
Normal mortgage brokerage do not charge fees for the services when the fees are paid by lenders, buy some cases Mortgage brokers make money by charging closing costs upfront and also via yield spread premium. What they charge can vary greatly, so make sure you do your homework before agreeing to work with a broker. And ask what they charge before you apply!
Mortgage brokers were largely blamed for the mortgage crisis because they originated loans on behalf of numerous banks and weren’t paid based on performance. Studies have shown that these originate-to-distribute loans have performed worse than loans funded via traditional channels. But the big banks were the ones that created the loan programs and made them available, so ultimately the blame lies with them.
only one word for- Mortgage Brokerages :They Work in the best interest of clients and get paid by Lenders in most cases.
This blog is intended as general information only and does not constitute legal advice. If you need legal advice, please speak to a lawyer.
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