Working with a mortgage broker can save you time, money and hassle when you’re trying to find the best home loan to buy or refinance a home. Learn how mortgage brokers’ access to dozens of different lenders can help you shop for multiple rate quotes all at once, or find the right mortgage program for complicated credit or income histories.
A mortgage broker is a licensed financial service provider who works with a variety of lenders— their job is to find the best interest rate and loan program to fit a borrower’s needs. Mortgage brokers don’t actually lend money; they only find lenders to match you with.
To get a mortgage brokerage license, an individual has to take federally mandated education courses, undergo a rigorous criminal and credit background check and pass a national test. Home loan brokers also have to meet the licensing requirements of each state they do business in, which may include providing personal financial statements.
All brokers, as well as the mortgage loan originators (MLOs) who work for them, must be licensed through the Nationwide Mortgage Licensing System Federal Registry (NMLS). They take continuing education courses and must renew their licenses annually in each state where they do business.
Mortgage brokers work with different banks and lenders to provide multiple lending options to their customers. They have to be approved by the lenders they do business with, and comply with all federal and state lending guidelines for mortgage lending.
An MLO working for an independent mortgage broker is also familiar with several different lenders’ products and interest rates, giving customers more choices than they’d get by shopping just one mortgage bank. MLOs continuously monitor the interest rates and programs of multiple lenders, saving you time and money you would’ve spent shopping around yourself.
You’ll have access to more mortgage banks and programs.
You won’t have direct access to the loan decision maker.
Your lender can switch to a different bank quickly if your loan is denied.
Your broker can’t make exception decisions for difficult loan applications.
You’ll have someone shopping for the best rates on your behalf, so you won’t have to.
Your loan funds may be delayed since mortgage brokers don’t actually lend money.
Mortgage brokers receive a fee for their services, usually based on a fixed percentage of your loan amount. Brokers can be paid directly by the customer or by the lender — but never by both.
Broker compensation must be disclosed on the loan estimate and closing disclosure forms you receive during the mortgage process. Federal law is crystal clear about how a loan originator can be paid, and brokers must follow stringent compensation guidelines, including:
As you shop for mortgage lenders, you’re likely to get offers from both mortgage brokers and mortgage banks. Also called a “lender” for short, a mortgage bank is a financial institution that lends you money directly for your home loan needs. The table below reflects how a mortgage broker differs from a lender:
| Mortgage broker | Lender |
|---|---|
| Doesn’t lend you money directly. | Lends you money from its own bank account or from its investors. |
| Offers you loan products and interest rates from multiple lenders. | Offers only home loan products from its own lenders. |
| The bulk of the loan process is handled by the bank the broker selects. | The bulk of the loan process is handled by the lender “in-house.” |
Many homebuyers and homeowners choose a national or local retail bank or credit union for their mortgage needs, because of the convenience of applying and making monthly payments where they do most of their regular banking. Below is a side-by-side comparison of some factors worth considering if you’re deciding between a mortgage broker and a bank:
| Mortgage broker | Bank |
|---|---|
| Lends you money through a mortgage bank. | Lenders you money directly. |
| Offers you a variety of loan products and rate options. | Offers a limited number of loan products and interest rate options. |
| Can switch to a different lender if you’re denied. | May offer special closing cost or interest rate incentives based on your deposit balances. |
It’s best to contact three to five different mortgage brokers to get an idea of what they can offer. Unless you have specific credit or income challenges, compare rates from mortgage banks and retail financial institutions to make sure you’re getting the best deal. Try a compare rate tool if you’d prefer a lender to send you competing offers based on your financial profile.
Rates change daily, so make sure you gather your estimates on the same date for an apples-to-apples comparison.
You may want to consider a mortgage broker if: