A mortgage broker is a licensed financial professional who acts as an intermediary between borrowers and mortgage lenders. They can help you identify multiple lenders who may be a good fit for you and help you start the application process and close your loan. They can also help you discover specialized mortgage options that you may qualify for.
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However, mortgage brokers have no say in whether or not you’ll be approved for a mortgage — that decision is up to the lender. Also, mortgage brokers are paid a fee for their services, usually by the mortgage lender but sometimes by the borrower.[1]
Mortgage broker vs. lender: what’s the difference?
The difference between a mortgage lender and a mortgage broker is that a mortgage lender funds your mortgage while a mortgage broker acts as an intermediary between you and multiple other brokerages.
Unlike mortgage brokers, mortgage lenders typically offer only their own mortgage products, along with their own interest rates and underwriting guidelines. Because the lender is funding your loan, they may process your application faster if you work with them directly.
A mortgage broker, on the other hand, can help you more easily compare multiple loans and potentially get you a better rate because they work with multiple lenders.
Choosing between a mortgage broker and a mortgage lender depends on your financial situation, time constraints, and comfort with the mortgage process. While mortgage brokers make the process of finding a mortgage easier, choosing a mortgage lender yourself gives you more control over the application process.
Pros and cons of using a mortgage broker
Mortgage brokers offer a range of advantages and disadvantages, which largely depend on your familiarity with the mortgage process and your time constraints.
Advantages:
- Easily compare lenders: Mortgage brokers have access to a network of lenders, allowing you to quickly shop around for the best rates and terms.
- Expert guidance: Mortgage brokers can provide guidance so you know what to expect from the mortgage process. In most states, brokers must meet minimum qualification requirements. For example, in North Carolina, mortgage brokers must have at least three years of mortgage lending experience.[2]
- Help with specialized loans: Because of their widespread expertise, mortgage brokers are often able to identify specialized loans, grants, and other programs to help borrowers who may otherwise have difficulty securing a home loan.
- Paperwork assistance: While brokers don’t decide whether or not you’ll qualify for a loan, they can help you with your application and with getting your paperwork in order.
Disadvantages:
- Additional costs: While you may not pay your broker directly, their commission is often built into the cost of your mortgage. You may save more by working with a lender directly.
- Less control: If you prefer having more control over the mortgage application process, you may be better off applying to mortgage lenders directly.
- Communication delays: Since mortgage brokers are an intermediary between you and the lender, communication could potentially be delayed.
- Loss of access to some loans: Some lenders only offer certain home loan products or discounts to borrowers they work directly with. By working with a broker, you potentially miss out on these programs.
How does a mortgage broker work?
Working with a mortgage broker usually follows a straightforward path:
Initial consultation: At your first meeting, the broker will assess your financial situation, such as your income, credit score, and down payment savings. They’ll also ask about your homebuying goals and your preferred mortgage terms.
Comparing lenders: The broker will then shop your application around to lenders in their network and present you with several options, including interest rates and fees of each loan.
Applying for a loan: If you select a lender, the broker will submit an application on your behalf. They’ll be your primary point of contact between you and the lender and help you identify any additional paperwork you may need.
Closing: Your broker will inform you of your approval status and provide support through closing. The entire process generally takes around 1-2 months, but the timeline could be faster or slower than that depending on your individual financial situation.
How to prepare to meet with a mortgage broker
Being prepared when you first meet with your mortgage broker can help the process run much smoother. Here’s how to research brokers, what questions to ask, and which documents to bring.
Comparing brokers:
Quality can vary a lot from one broker to another, so you should do some research beforehand. Look online for recent reviews and testimonials and ensure that any broker you’re considering is licensed in your state.
Also, check current average mortgage rates so you’ll be able to quickly assess whether the loan options a broker presents to you are competitive. Finally, be sure you understand the role of a mortgage broker and how they differ from other mortgage professionals, such as mortgage loan originators.
Paperwork to bring:
During your first meeting, your broker will need to assess your financial situation so that they know what type of mortgages you may qualify for. Documents that can help with this step may include:
- Pay stubs and tax returns
- Bank statements
- Credit reports
- Employment verification
- Investment fund documents
- Proof of retirement savings
Questions to ask:
To make sure you’re getting the best service, you should ask your broker the following questions:
- What is your experience? Ask how many years they’ve been working in the mortgage industry and for verification that they're licensed.
- What is your fee structure? Brokers are usually paid by the mortgage lender, but some are paid directly by the borrower.
- How many lenders do you work with? The more lenders in their network, the better chance you’ll get a better deal. You may also want to ask if they work with any specialized lenders if your financial situation is unique.
- How long does the process take? Your broker should be able to give you a rough timeline estimate once they have a complete picture of your financial health and goals.
- How often will you provide updates? Set expectations early on about how often you’d like to be updated regarding your mortgage application in order to avoid delays and misunderstandings.
Is a mortgage broker right for you?
If you’re looking to save time while still getting a competitive rate on your mortgage, using a mortgage broker can be a good idea. Brokers make the mortgage application process less stressful by comparing multiple lenders quickly.
But if you have time on your hands and you're knowledgeable about the mortgage approval process, then working directly with mortgage lenders yourself could land you a better deal and avoid delays.
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