Mortgage Broker

Article byWallstreetmojo Team
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

What is a Mortgage Broker?

A mortgage broker is an intermediary that liaisons the mortgage borrower and mortgage lender. They are responsible for gathering information and completing the documentation process concerning income earned, an asset owned, credit report, employment details, and other information required for assessing the ability of the borrower to secure financing.

Mortgage Broker

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A broker of this nature helps save the time and efforts of borrowers by completing documentation and other related factors which saves a lot of money over the time span of the loan. In exchange for the services rendered, they charge a mortgage broker fee. These commissions or fees are also commonly referred to as origination fees.

Key Takeaways

  • A mortgage broker is a middleman who liaises between the borrower and the mortgage lender. They gather information and complete the documentation process related to the borrower’s income, assets, credit report, employment details, and other information required to assess the borrower’s ability to secure financing.
  • Mortgage brokers guide how to use home equity and simplify the refinancing process of a home loan.
  • The advantages of working with a mortgage broker are that they evaluate the buyer and seller needs, assess the borrower’s borrowing power, compare various options, and offer expert advice. 

Mortgage Broker Explained

A mortgage broker is an intermediary in a financial transaction between borrowers and the best option for securing a loan, its interest rates, tenure period, and other such considerations. These brokers can either be a part of a mortgage brokerage company or can work as independent agents.

They save time, effort, and money of their clients by holding a portfolio of financial institutions with different levels of loans. They also sometimes have a list of properties available to be purchased.

They gather information regarding income, assets, credit reports, and other related documents to ensure the borrower can get the best loan possible given their credentials. The mortgage broker license gives them the legal authority to be the spokesperson of sorts on behalf of their clients and negotiate a deal that is profitable for the borrower.

Once both parties agree on the terms, a mortgage loan is sanctioned in the name of the lender. The borrower is responsible to settle the dues on a monthly basis and the broker is paid their origination fees only when the loan is sanctioned.

It is important for borrowers to ensure their broker has the license and the right credentials to be competent and reliable enough to carry out such transactions and negotiations on their behalf.

They are eligible to receive a considerable amount of fees for their services only upon the finalization of their deal. It means if a mortgage broker cannot convert a lead, he is not entitled to receive any fees for all his efforts and hard work. The commission charged by a mortgage broker is paid by the lender or by both the lender and borrower, and as per industry norms, he is generally entitled to receive 1 percent of the total loan amount.

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What Do They Do?

Let us understand what a residential or a commercial mortgage broker do earn their commission or fee from their client through the discussion below.

Advantages

Let us understand the advantages of incurring the cost of paying mortgage broker fees for a borrower. The extra expense of acquiring a loan gives them the best possible option both in terms of the property and the loan agreement.

  • Evaluate Buyer and Seller Needs: They evaluate the needs of both the borrower and the lender and accordingly introduce them so that the chances of deal finalization are one hundred percent confirmed.
  • Evaluate Borrowing Power: They do the legwork of evaluating the borrowing power of the borrower by accessing their details of credit rating, assets owned, yearly income, etc.
  • Compare Between Options: A mortgage broker help in making a comparison between all the available mortgage options and can guide the borrower in choosing the best option among all.
  • Offer Expert Advice: They offer expert advice since they research the properties.

Disadvantages

Despite the advantages mentioned in the section above and throughout the article, there are a few factors that prove to be a hassle for all three parties involved. Let us understand the disadvantages of hiring a residential or commercial mortgage broker through the points below.

  • They may not necessarily source the right deal for the parties to a transaction. Sometimes the lenders may offer the borrowers the same rates and terms as they provide to the mortgage broker. Therefore, a borrower might unnecessarily pay the broker’s fees in such a case.
  • Not all lenders work with intermediaries or mortgage brokers. Therefore, working with them can make an individual miss out on lenders that have opted for a broker-free transaction.
  • The services of a mortgage broker are chargeable, and hence, the parties to the transaction are entitled to pay the same.

Frequently Asked Questions (FAQs)

1. How does a mortgage broker differ from a mortgage lender?

A mortgage broker is an intermediary who works with multiple lenders to find the best mortgage for their clients. In contrast, a mortgage lender is a financial institution that provides the actual funds for a mortgage. As a result, mortgage brokers can offer borrowers access to a wider range of lenders and loan products than a single mortgage lender.

2. Can a mortgage broker help a client having bad credit?

Yes, a mortgage broker can help a client with bad credit. They can work with a network of lenders that provides mortgages to borrowers with less-than-perfect credit histories. The broker can also advise the borrower on steps they can take to improve their credit score to increase their chances of getting approved for a mortgage.

3. When working with a mortgage broker, how long does it typically take to close on a mortgage?

The time it takes to close on a mortgage when working with a mortgage broker can vary depending on several factors, including the borrower’s financial situation, the complexity of the mortgage application, and the lender’s underwriting process. Typically, the process can take 30 to 45 days, but it can take longer sometimes.

This article is a guide to what is a Mortgage Broker. We explain what mortgage brokers do, their compensation, advantages, and disadvantages. You can learn more about finance from the following articles: –

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