What does a mortgage broker do?

Castles in the Sand

I’ve talked many times in this space about getting a mortgage for a home and how it is one of the most stressful aspects of purchasing. Many people don’t have the time to contact numerous lenders and comb through the details when shopping around and choose instead to go to a mortgage broker for help. But what do they really do and how much does it cost?

Mortgage brokers are licensed in the state of Florida and most states as well. They are financial professionals who act as the bridge between borrowers and lenders. They originate loans and help you connect with a variety of lenders who best fit your financial situation. Working directly with a bank will not give borrowers any flexibility in rates or loan requirements, however, mortgage brokers can offer buyers products of many banks and many more options. This is particularly important for buyers who may not have perfect credit scores and have small down payments.

In addition, mortgage brokers coordinate and manage paperwork and typically close a home loan faster than a traditional bank. They work in cooperation with real estate agents, underwriters, lenders, title companies and attorneys. They are part of the closing team and are trained to anticipate glitches and troubleshoot problems standing in the way of a closing.

There are disadvantages to using a mortgage broker. Since they are motivated to close as many properties as possible, keeping up with the hands-on service can be a challenge for them. It’s critical that you choose a broker who comes with a good recommendation from a friend, family member or real estate professional who has had recent transactions with the broker. Also, you must feel comfortable with the mortgage broker and feel you can tell them anything since you are essentially telling them everything about your personal finances.

Mortgage brokers are paid by commission by either the borrower or the lender. The fee is typically 1% or 2% of the total loan amount and usually is rolled into the loan in the case of a no-cost loan. However, be alert since rolling in the mortgage broker origination fee could result in a higher interest rate.  The other option is to pay a loan origination fee to the broker separately, again 1% to 2% of the loan amount.

Mortgage brokers are required to disclose all fees up front and can charge only that disclosed fee amount. Further, each fee should be itemized, and the broker should be ready to tell you, the borrower, exactly what each fee was for. Mortgage brokers, like real estate brokers, do not get paid unless there are a closed loan and a closed transaction regardless of how much work they do prior to closing.

After the financial crisis, the Dodd-Frank Act restructured how mortgage brokers get paid. Before this legislation came into effect, lenders could compensate mortgage brokers for getting their clients to agree to high-interest rate loans and signing off on costly fees. This left the door open to an unscrupulous loan broker and hidden fees, affecting many inexperienced buyers.

With so many details involved in purchasing a home, working with a competent mortgage broker whom you’re comfortable with can be a good idea to help you get through the process. They could be invaluable in procuring the best loan for your financial situation and taking some of the work off your shoulders.

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