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What is a Mortgage Broker?
A mortgage broker is an intermediary who brings mortgage borrowers and mortgage lenders together, but who does not use their own funds to originate mortgages.
A mortgage broker helps borrowers connect with lenders and seeks out the best lender for the borrower's financial situation and interest-rate needs. They do the legwork so a borrower doesn't have to.
The mortgage broker also gathers paperwork from the borrower and passes it along to a mortgage lender for underwriting and approval purposes. The broker earns a commission from either the borrower, the lender, or both at closing.
How Mortgage Brokers Work
A mortgage broker serves as the intermediary between borrowers and lenders in the real estate market. Whether a potential borrower is buying a new home or refinancing, a mortgage broker is responsible for presenting loan options from various lenders to the borrower for consideration, while qualifying the borrower for a mortgage with those lenders at the same time.
The mortgage broker also gathers from the borrower the financial information needed for the mortgage application process. This information pertains to income, assets, debt, employment documentation, a credit report, and other data lenders can use to assess the borrower’s ability to secure financing and pay a loan. The mortgage broker then passes it on to potential lenders.
The broker determines an appropriate loan amount, loan-to-value (LTV) ratio, and the borrower’s ideal loan type. They then submit the application to a lender for approval. The broker communicates with the borrower and the lender during the entire transaction through closing.
Once agreed upon, mortgage funds are loaned in the name of the mortgage lender, and the mortgage broker collects a commission called an origination fee from the lender as compensation for their services. The borrower may be responsible for paying all or part of that fee in the closing statement. The mortgage broker only gets paid when the loan transaction is completed.
Mortgage Brokers VS Loan Officers
When consumers wish to buy or refinance a home, often their first step is to contact a loan officer in a local bank or credit union. A bank loan officer offers programs and mortgage rates from a single institution.
By contrast, a mortgage broker works on a borrower’s behalf to find the lowest available mortgage rates and/or the best loan programs available through multiple lenders.
A mortgage broker often works with several clients at one time and does not get paid unless a loan closes. This encourages mortgage brokers to work with each borrower on a more personal level. If a loan originated through the efforts of a mortgage broker is declined, the broker applies to another lender.
A loan officer from a big bank may keep a borrower waiting for an extended period of time because the officer is working with many borrowers at once. If a loan originating through a loan officer is declined, no further action is taken by the loan officer or bank.
Some lenders work exclusively with mortgage brokers, providing borrowers access to loans that would otherwise not be available to them.