Mortgage Broker

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A mortgage broker connects borrowers and lenders.

What is a mortgage broker?

A mortgage broker functions as an intermediary between borrowers and mortgage lenders. They gather all relevant paperwork from the borrower and provide it to a suitable mortgage lender based on the borrower’s financial situation. Finally, the mortgage lender would start the underwriting process and approve or deny the loan.

Benefits of Working with a Mortgage Broker

1. Brokers do most of the legwork.

The most obvious benefit of working with a mortgage broker is that they assist you through the entire loan application and closing process. They can also help apply for any applicable government grants and incentives.

2. The best loan for your situation.

Mortgage brokers are supposed to evaluate your financial circumstances and mortgage goals to find the best lender for you. They can research multiple banks and different loan options to present your top loan choices. You can avoid the repetitive process of getting loan estimates from different banks.

3. Brokers may have special connections with lenders.

Due to the volume of business that mortgage brokers bring in, they may have access to special rates from lenders. Additionally, some lenders may waive some or all of their origination fees, application fees, and appraisal costs. In the right situation, this may save you hundreds to thousands of dollars.

4. Brokers can answer your questions.

Mortgage brokers should be able to explain the advantages and disadvantages of different loan types as well as differing loan terms. They can work with you to make sure you completely understand the best option for your circumstance.

Limitations of Working with a Mortgage Broker

1. Potential Conflict of Interest.

In the same vein that brokers may have exclusive deals with lenders, a mortgage broker may also get some form of commission for bringing in new business. As a result, your mortgage broker may not have your best interests in mind.

2. Broker fee.

A broker makes money through the lender or the borrower. Therefore, if the lender is paying the broker’s fee, you may question whether the loan is actually in your best interests. On the other hand, if you are footing the bill, this adds to your mortgage costs.

3. Brokers don’t always get the best deal.

Some lenders refuse to work with mortgage brokers. As a result, you may lose out on what that bank has to offer. Alternatively, some banks quote mortgage brokers and homebuyers the same rate. Therefore, it’s best to shop around to see if your broker is really getting you a great deal, or if you can find a better arrangement yourself.

Mortgage Broker vs. Mortgage Lender vs. Mortgage Banker

A mortgage broker operates as a matchmaker between the borrower and the lender.

On the other hand, a mortgage lender is a licensed professional that funds your loan.

Finally, a mortgage banker uses its own funds to originate and service mortgages. Their goal is to sell these mortgages to investors, such as Fannie Mae or Freddie Mac, on the secondary mortgage market.