Mortgage Broker: Definition, How They Work, and Responsibilities

What Is a Mortgage Broker?

A mortgage broker is an intermediary who connects mortgage borrowers and lenders, without using their own funds to originate mortgages.

A mortgage broker helps borrowers connect with lenders and find the best lender for their financial situation and interest-rate needs. They do the legwork for borrowers.

The mortgage broker also gathers paperwork from the borrower and passes it to a mortgage lender for underwriting and approval. The broker earns a commission from the borrower, the lender, or both at closing.

A mortgage broker should not be confused with a mortgage banker, who funds and closes mortgages with their own funds.

Key Takeaways

• A mortgage broker matches home borrowers with potential lenders to obtain the best mortgage terms.
• A mortgage broker can save borrowers time, effort, and money during the loan application process.
• Mortgage brokers earn commissions based on the loan size and may work independently or for a mortgage brokerage firm.
• You don’t have to work with a mortgage broker to get a mortgage.
• However, some lenders only work with mortgage brokers, making them a good option for home loans.

How Mortgage Brokers Work

A mortgage broker connects borrowers and lenders in the real estate market. They present loan options from various lenders to borrowers, while qualifying borrowers for a mortgage.

Additional Responsibilities

The mortgage broker gathers the borrower’s financial information necessary for the mortgage application process. This includes income, assets, debt, employment documentation, credit reports, and other data used by lenders to assess the borrower’s ability to secure financing and repay the loan. The broker then passes this information to lenders.

The broker determines the appropriate loan amount, loan-to-value ratio, and the borrower’s ideal loan type. They submit the application to a lender for approval and communicate with the borrower and lender throughout the transaction.

Once agreed upon, mortgage funds are loaned in the name of the mortgage lender, and the broker collects an origination fee from the lender at closing. The borrower may be responsible for paying all or part of that fee. The broker only gets paid when the loan transaction is completed.

Borrowers should read online reviews and ask for referrals when choosing a mortgage broker. It’s important to work with someone you trust and who provides good service.

The Consumer Financial Protection Bureau oversees mortgage brokers, loan originators, and servicers.

Advantages and Disadvantages of Mortgage Brokers

Advantages

• Mortgage brokers save borrowers time and effort by finding potential lenders for them.
• They help borrowers avoid unsuitable lenders.
• They provide access to lenders that may not be available otherwise.
• They offer financial savings through potential fee waivers and better loan rates.

Disadvantages

• Some lenders may offer the same or better terms directly.
• Mortgage brokers charge a fee for their services.
• Some lenders don’t work with mortgage brokers, potentially leading to missed opportunities.
• Some mortgage brokers may have conflicts of interest and direct borrowers to lenders based on payment, rather than suitability.

Mortgage Brokers vs. Loan Officers

When buying or refinancing a home, consumers often contact a loan officer in a local bank. A loan officer offers programs and mortgage rates from their institution.

By contrast, a mortgage broker works on a borrower’s behalf to find the lowest mortgage rates and best loan programs available through multiple lenders.

However, a mortgage broker’s access to lenders is limited, and borrowers should do their own research to find the best deal.

A mortgage broker typically works with several clients at once and only gets paid when a loan closes. If a loan is declined, the broker applies to another lender.

A loan officer may keep a borrower waiting due to multiple clients. If a loan is declined, no further action is taken by the loan officer or bank.

Some lenders exclusively work with mortgage brokers, providing borrowers access to loans not available otherwise. Mortgage brokers can also negotiate fee waivers. Big banks work exclusively with loan officers and do not waive fees.

Can I Get a Home Loan Without a Mortgage Broker?

Yes, you can. However, a mortgage broker can do the heavy lifting for you. Their purpose is to match borrowers with lenders.

Do Mortgage Brokers Have Conflicts of Interest?

Perhaps. Mortgage brokers earn commissions from lenders, creating a potential conflict of interest. They may direct borrowers to lenders that pay them better, rather than those better suited to the borrower’s needs. Loan officers paid salaries do not have this motivation.

Why Would You Go to a Mortgage Broker?

Mortgage brokers provide access to various lenders that borrowers may not otherwise discover. They assist with the paperwork and loan application. Some lenders only work with mortgage brokers.

The Bottom Line

A mortgage broker matches home loan seekers with lenders offering the best loans. They can save borrowers time, effort, and possibly money during the mortgage process, for a fee.

Before working with a mortgage broker, research their costs, reputation, services, and benefits compared to getting a mortgage yourself.