If you’re buying a home, chances are you’ll need a mortgage, but did you know that you choose between hiring a mortgage broker and bank loan officer?
Mortgage brokers are the middlemen who are paid a fee to bring together buyers and banks. They usually work with dozens of lenders, not as employees, but as freelance agents. They work directly with the consumer and the numerous lenders (the wholesale market) to help borrowers qualify for a mortgage, whether it be a purchase mortgage or a refinance. Their job is to find you the best loan and assist you through closing. An experienced and efficient broker can potentially save you time, hassle and, most importantly, money.
Once a home buyer makes contact with a mortgage broker, the broker will gather the important paperwork from a borrower and passed that paperwork along to a mortgage lender for underwriting and approval. Brokers handle the loan paperwork — including a borrowers’ income, assets, employment documentation and credit report — and the interaction with the lending institutions.
In exchange for their services, mortgage broker charge fees, which can run between $600 and $900, plus a yield spread premium from the lender as compensation for its services. What they charge can vary greatly, so make sure you do your homework before agreeing to work with a mortgage broker. And ask what they charge before you apply.
After all the paperwork is taken care of, the mortgage broker will work on behalf of the borrower to find the best (lowest) mortgage rates available. They have the ability to shop with numerous banks and lenders simultaneously to find the lowest rate or the best loan program.
For years, banks have used independent mortgage brokers to outsource the job of finding and qualifying borrowers for home loans. Mortgage brokers, however, should not be confused with mortgage banker, which funds and closes a mortgage with its own funds.
But the mortgage broker business is changing. Since 2009 major lenders, including JP Morgan Chase, Citibank, Bank of America and Wells Fargo, have departed from the wholesale market, which means mortgage brokers no longer have access to loans from many large financial institutions.
At one time, mortgage brokers controlled 40 percent of the home loan origination market, now it’s under 5 percent. And their ranks are shrinking. The National Association of Mortgage Brokers currently has roughly 5,000 members, down from 25,000 in 2006.
So for consumers shopping around for the absolute best loan, working with a broker means fewer choices than before. Brokers can be helpful — holding your hand through an arduous process. But if you prefer to have a loan from a major lender, you may have to work independently.