A mortgage broker is an agent who connects home buyers with mortgage lenders. These brokers act as intermediaries between the borrowers and the lenders.
As a real estate student, you must understand the responsibilities of a mortgage broker. As a real estate teacher, I have noticed that most students confuse a mortgage broker with a loan officer. However, both are entirely different terms. If you’re struggling to understand the definition of a mortgage broker, I’m here to help.
In this post, I will define a mortgage broker and explain its role in the mortgage process. After reading this post, you’ll be able to understand the duties of a mortgage broker.
What Is a Mortgage Broker?
A mortgage broker is a third party who brings the borrower and the lender to one platform. They facilitate communication between the lender and the borrower. Mortgage brokers help borrowers get the best mortgage deal so that the borrowers and lenders work towards loan origination. From finding the most competitive interest rates to getting the most favorable fees for the closing of a mortgage, a broker does everything.
Besides bringing the borrower and lender together, a mortgage broker gathers documents from the borrower and forwards them to a lender for underwriting and approval. A mortgage broker doesn’t use their funds for the lending process; they charge a fee for their services. In general, a mortgage broker works with different lenders so that they provide different mortgage options to the borrower.
Duties of a Mortgage Broker
A mortgage broker helps borrowers find the most suitable mortgage for their requirements. In general, the duties are as follows:
- Marketing their skills and services to the borrowers and lenders
- Educating themselves and getting knowledge on the financial situation of the borrower
- Helping the borrowers get suitable mortgage options
- Gathering relevant information such as borrower’s credit report, income, assets, and employment details and forwarding them to the lender
- Evaluating the market to find other mortgage options for the borrower
- Helping the client in obtaining mortgage pre-approval
- Completing the mortgage application
- Submitting all documents to the lender
- Ensuring the borrower understands all the legal requirements
Mortgage Broker vs Loan Officer
When looking for a mortgage, the borrower has two options when they need help. They can consult a mortgage broker or a loan officer. Their roles are almost similar, and they might ask the same questions from the borrower. They will both ask about the borrower’s financial situation and credit score and help fill out the mortgage form.
The main difference between a mortgage broker and a loan officer is the person they work for. A loan officer works for a credit union, bank, financial institution, or another lender. Loan officers offer mortgage rates and terms from those particular institutions only. On the other hand, a mortgage broker works on behalf of a borrower to find the best mortgage rate and terms.
|Loan Officer||Mortgage Broker|
|Works for a lender such as a credit union or bank||Works independently, mostly on the borrower’s behalf|
|Offers mortgages from their institution or lender only||Offers mortgage that best meets the requirements of the borrower|
|Access to down payment assistance programs and reduced rates and fees||Access to multiple mortgages with better rates and terms|
Advantages of a Mortgage Broker
The borrowers might not be able to access a variety of mortgage lenders. Mortgage brokers work with various lenders; thus, they can get better rates and terms after comparing the options. Besides, a mortgage broker can get a lower rate than the borrower would get on their own.
Gives Expert Advice on Mortgage
Mortgage brokers have deep knowledge of how mortgages work, and they can give expert advice. These brokers research properties and have knowledge and expertise regarding the mortgage lending process.
Works for the Borrower’s Convenience
Mortgage brokers can be beneficial, especially for borrowers who don’t know much about mortgage lenders and how things work. These brokers also have a good understanding of the mortgage market and the requirements of the mortgage lenders for different types of mortgages.
Evaluates the Buyer and Seller’s Needs
A mortgage broker evaluates the requirements of the borrower and the lender both. They facilitate communication between the lender and the borrower, so they come on one page. A mortgage broker also assesses the buying power of the borrower by assessing their income, assets, and credit rating.
Disadvantages of a Mortgage Broker
A mortgage broker charges fees for providing their services. The fees can vary between brokers and depend on various factors.
Not all mortgage brokers have access to the whole mortgage market. Thus, a mortgage broker might not get the best deal for the borrower.
Mortgage Broker Example
David wants to purchase a property worth $225,000, but he cannot find a suitable mortgage lender. He came to know about John, who works as a mortgage broker. John determines the appropriate mortgage amount to purchase the property and the loan-to-value ratio (LTV).
He gathers all the necessary paperwork for submitting a mortgage, which includes bank statements, employment details, monthly income, and assets. After comparing options, John then submits all the information and documents to the right mortgage lender. The lender takes the help of an underwriter to evaluate the risk.
After evaluation and assessment of risk for the mortgage, the lender decides to offer a mortgage of $200,000 to David. John collects a mortgage brokerage fee of 2% of the mortgage amount, that is, $4000.
Frequently Asked Questions
How Much Does a Mortgage Broker Cost?
Mortgage broker fees vary from broker to broker and depend on several factors. The average cost of a mortgage broker is 0.5 % to 2.75% of the mortgage amount. Also, different brokers charge different brokerage fees. For instance, they can have a fixed rate, an hourly rate, on commission, or a percentage basis.
What is the Difference Between a Lender and a Mortgage Broker?
A mortgage broker helps get the best mortgage rates and terms for the borrower. They work as a go-between between the lender and the borrower to facilitate transactions. On the other hand, a lender is the one who provides a mortgage. A lender provides funds for a mortgage, but a mortgage broker bridges the gap between the borrower and the lender.
How Does a Mortgage Broker Get Paid?
Mostly the borrower or the mortgage lender pays the broker a fee or commission once the loan is closed. Some mortgage brokers ask for a brokerage fee directly from the borrower, while others get paid by the lender. Mortgage fees can also appear on the closing disclosure or the loan estimate.
What Is the Function of a Mortgage Broker?
A mortgage broker researches the mortgage market and loan options available for the borrowers. A broker can assess the borrower’s credit history and verify their income and assets to apply for a mortgage. Mortgage brokers gather all the documents and help borrowers apply for a mortgage. Once they submit a mortgage application, the brokers serve as a link between the mortgage lender and the borrower.
How to Find a Mortgage Broker?
Mortgage brokers can be found through recommendations from friends, family, and real estate agents. A borrower must do complete research before choosing a mortgage broker. For instance, evaluating their license, reading online reviews, and going through the Better Business Bureau will help them choose the right mortgage broker.
What to Know for the Real Estate Exam
A mortgage broker works on behalf of a borrower to get them the best rates and terms on the mortgage. The brokers work to bridge the gap between the borrowers and the lenders so that they get the best deal for the mortgage. The broker does everything from document collection, paperwork preparation, and gathering information regarding credit reports, income, and assets.
After collecting all the information, the borrower submits them to the lender for mortgage approval. A broker communicates with the borrower and the lender during the mortgage lending process. Understanding this process is essential for the real estate exam and your real estate career. If you want to learn other such terms, go through these easy-to-learn real estate definitions.