Pros and Cons of Using Mortgage Broker Services

Broker having a discussion with a young couple who are sitting listening to her with serious attentive expressions

Many home buyers recruit the services of a mortgage broker when shopping for a mortgage. An experienced and knowledgeable mortgage broker can help you find the right mortgage, but there are advantages and disadvantage to consider before committing.

Advantages

  • Saves you the Legwork – Mortgage brokers have frequent contact with a vast array of lenders, some you may not even know about. A broker will save you the time and energy having to call up dozens of lenders comparing terms and rates on your own.
  • Brokers Have More Access – There are some lenders that you may not be able to call directly as they will only work with mortgage brokers. A broker could also be able to get special rates from lenders depending on the volume of business they generate.
  • You May Have Some Fees – There can be many different fees involved in a new mortgage such as application fees, appraisal fees, or origination fees. Sometimes mortgage brokers can get lender to waive some or all fees and that can save you hundreds to thousands of dollars.

Disadvantages

  • Brokers’ Interests Might not Match Yours – You are in it for the long haul so your ultimate goal should be to find a mortgage with affordable interest rate and low fees. A mortgage broker will often get paid a fee for bringing the lender business. Fees can be based on the amount of the mortgage; therefore the broker’s goal may be to get you the mortgage that gets them the most compensation.
  • You Might not be Getting the Best Deal – Sometimes a lender may offer buyers precisely the same terms and rates that they offer brokers and sometimes even better. It doesn’t hurt to shop around on your own to see if your broker is really getting you a good deal.
  • Brokers Often do not Guarantee Estimates – Broker’s often use the term “good faith estimate” when presenting you with the lender’s offer. The broker believes that these offers will mirror what the final terms of the deal are. The lender might change the terms based on your application in some cases, and this may cause you to pay higher rates or extra fees.

If you choose to use the services of a mortgage broker, work with a reliable one with solid references that can guarantee their loan estimates.

4 Questions to ask a Mortgage Broker

Two Businessmen in Meeting

Most borrowers go through a mortgage broker for their home loan services. A broker can shop among different lenders to find the best deal; this is one of the main advantages to using a broker instead of a bank.

Justified or not borrowers a lot of times feel they then can trust the big name lenders and banks. They don’t always feel as confident about small mortgage broker companies.

Here are four questions to ask a mortgage broker if you are thinking of using their services.

Can I get references?

You may have already found the broker through a reference such as a friend, relative, or coworker. But if you selected a broker through another measure, you can definitely request references.

Get the names and contact information of their most recent two or three customers. Ask them how they were treated and if they would do business with the broker again.

How long have you been in business?

What is long enough? A new mortgage broker can even give good service. But if you are looking for someone who has had a career in the mortgage industry in slow times as well as good, choose a broker who has been doing home loans for at least three years.

How are you compensated?

Fees and yield spread premiums are the two main ways that mortgage brokers gets paid. The fee will often come in the form of points, where one point will equal one percent of the loan amount.

You may find it listed as the lender’s origination fee or mortgage broker commission on the loan documents. There might also be application, funding, processing, and document preparation fees.

How do you handle rate locks?

Brokers will sometimes gamble with rate locks. You may tell your broker to lock a particular rate on a certain date, and they will tell you on the phone that they did. The broker could secretly not lock the rate in hopes that rates will go down before your closing day.

If they do this and the rates do go down even just for a day, the broker can lock at the lower rate. But you will still pay the higher rate that you previously locked at. The broker makes a little profit on the difference.

The best way to handle this is to ask your broker for a loan commitment letter from the lender.