What would you choose: working with a mortgage broker, or a mortgage lender? In both scenarios, you’ll be working with a person (a “mortgage banker” or “loan officer” if you opt for working directly with the bank). And, as Mark Greene expertly writes for Forbes, you’ll be dealing with a salesperson.
The job of all mortgage brokers anywhere is similar to that of any other financial advisor: to advertise their product well, find a good solution for your budget and needs, and guide you through the process of securing the home loan.
Image source: Residential Home Funding Corp.
That being said, it’s important to remember two things:
- Mortgage brokers represent the interests of their employers, the mortgage companies, not yours.
- They are primed to sell, sell, sell—and since you’re the one buying a credit line that you’ll be dealing with for the next 20-30 years, it’s important to pick your allies wisely.
Here’s how to make sure you’re working with a good broker for home loans:
What is a mortgage broker?
As all financial advisors and other brokers, a mortgage broker is a third-party intermediary between a bank (which awards mortgages) and a potential borrower. Unlike mortgage bankers, who use the bank’s own money to fund the mortgage, a broker does not originate any loans.
The main duty of mortgage broker is to help the borrower collect all the necessary paperwork for the loan, to then forward them to the lender. Based on these documents, the loan is then underwritten and approved.
Brokers receive origination fees and/or yield spread premiums for their intermediation services. In order to make money, brokers mark-up loan costs from the wholesale lender. They then pass these on to the debtor, in point form—one point equals 1% of the total value of the loan.
How to choose the perfect mortgage broker in 3 easy steps
In the wake of the housing bubble, mortgage brokers became something of a villainous figure and their numbers were dramatically reduced. By 2013, they only controlled 9.7% of the origination market, which is a paltry ratio compared to pre-bubble times. And they don’t have as many options as they used to, either, since pricing rates for 30-year, fixed rate mortgages are pretty high these days.
On the upside, though, mortgage brokers these days are required to pass state licensing exams, under the 2008 SAFE Mortgage Licensing Act. So, as far as expertise is concerned, you can rest (more) assured when choosing a broker these days.
Here are some guidelines on how to spot the best ones:
1. Ask for recommendations
It’s been said time and again, but it most certainly bears repeating: always ask for references, when ‘window shopping’ for a mortgage intermediary. If you have any friends or family who’ve recently taken out a mortgage, don’t hesitate to ask about their experience.
If you have an accountant, lawyer, or financial adviser, you might also want to check with them for references. The nature of their professions makes these experts deal with mortgage bankers on the regular—so they probably know of a few good brokers, too.
Also, check out useful review websites, such as Yelp, or dedicated real estate portals like Trulia. Google away, too—but remember that most of the things you see online are shiny ads and clever marketing, so take it all with a hearty grain of salt and a healthy dose of skepticism.
2. Get a second opinion
A mortgage is usually a lifetime deal, so approach it in the same way you would a medical diagnostic. Instead of blindly trusting a single professional, don’t hesitate to ask for a second or third opinion.
3. Ask for written documentation
Every single mortgage broker you approach will tell you that their offer is the best one on the market. As such, it’s a good idea to take down in writing anything they tell you. Make notes, ask for written offers, and make sure everything gets faxed over or sent to you via e-mail.
The regulations on Good Faith Estimates (GFE) and Truth-In-Lending has recently gotten stricter, in favor of the borrower. An honest, trustworthy mortgage broker should be aware of this and send you all the necessary information in due time.